Member States of the European Union are continuing their discussions on the legislative initiatives presented on 17 June by the European Commission, aimed at modernising the regulatory framework for securitisation within the Union (see EUROPE 13661/26). The Danish Presidency of the Council of the EU is aiming to reach a political agreement in principle by the end of the year, while the European Commission’s general objectives are receiving broad yet cautious support from the Member States (see EUROPE 13716/18).
Differences however, do remain and in particular with regard to the revision of the Capital Requirements Regulation (CRR), one of the two texts proposed for revision through the ordinary legislative procedure. This regulation defines the capital requirements applicable to banking institutions that issue or invest in securitisation transactions.
To fine-tune prudential requirements and revive the market, the European Commission is proposing to introduce a new ‘risk-weight floor’ that is more sensitive to the actual risk of assets, as well as a recalibration of the ‘p-factor’, a technical parameter for calculating the capital that banks must tie up to cover their exposures.
In addition, the Commission is introducing the concept of ‘resilient positions’ as distinct from the current binary framework of ‘STS’ (simple, transparent, and standardised) and ‘non-STS’ securitisations, in order to identify certain securitisation tranches deemed to be particularly safe and to apply more favourable prudential treatment to them.
In September, several countries, including Germany, took the view that these proposals made the current framework unnecessarily complex. “We are of the view that the current set-up with STS and Non-STS, which is based on the Basel principles, has proven beneficial for the market”, Berlin stated in a working document that compiled preliminary national assessments, as seen by Agence Europe.
“Changes to banks’ capital requirements must be risk-based and not introduce new risks to financial stability. Moreover, some proposed changes lack consistency with the key political priorities, such as simplification and reducing administrative burdens”, said Estonia.
Danish proposals. In mid-October, the Presidency of the EU Council recommended simplifying the recalibration of the ‘p-factor’ and suggested maintaining the concept of resilience, making it applicable to both ‘STS’ and ‘non-STS’ securitisations, in line with the European Commission’s proposal.
In its search for a compromise, Copenhagen has also proposed introducing a formula-based “RW-floor” – known as the “dynamic floor” – for the ‘senior’ tranches of securitisations, i.e. those that are most protected against losses linked to payment defaults on the underlying assets. “A small majority of Member States prefer the dynamic floor, which is broadly perceived as more risk sensitive than the current fixed framework”, the Presidency said in another working document.
See the September working document: https://aeur.eu/f/j72 ; and the October working document: https://aeur.eu/f/j73.
European Parliament. At the European Parliament, MEPs questioned stakeholders in committee on Monday 13 October (see EUROPE 13729/20). A draft report by Ralf Seekatz (EPP, German) is expected in December. (Original version in French by Bernard Denuit)