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BondMarkets Online: News From The Bond Market Association

September 2002

Global

ESF Requests Additional Changes to Basel Committee’s Plan for Treatment of Asset Securitizations

Proposals outlining the treatment of asset securitizations under proposed revisions to the Basel Committee on Banking Supervision’s 1988 Basel Capital Accord still require significant changes, the European Securitisation Forum said in a recent comment letter.

    The proposed revisions—released in January 2001—suggest a number of changes that would have wide-ranging effects on banking regulations across the globe, impacting several markets, including asset securitization as well as securities lending and repos.

Following its roundtable with the Basel Committee’s Securitisation Group in August, the ESF filed its letter dealing with asset securitizations under the Supervisory Formula Approach (SFA) and the Ratings Based Approach (RBA).

    “We remain highly concerned about the Securitisation Group’s conscious decision to substantially ignore all available evidence and industry practice in continuing to discriminate heavily against securitisation,” the ESF said.

    The ESF asked the Basel Committee to consider several changes that would soften its treatment of asset-backed securitizations. These included a suggestion to reduce the capital requirements for asset-backed securitizations. “This is because data show that subordinated asset-backed securities positions exhibit significantly less volatility on measures such as leverage and tranche thinness than similarly rated corporate positions,” the ESF said.

    “Despite the overwhelming evidence and uniform practice that like-rated corporate and ABS positions bear fundamentally the same risks, the proposals continue to suggest that regulatory capital should be assessed against certain ABS positions in amounts that are up to 300 percent of the capital for like-rated corporate positions,” the ESF said. “This different treatment cannot be dismissed as a minor ‘risk premium’ to cover ‘uncertainties’ in securitisation positions; it is an unjustified wholesale difference in approach between the capital rules applicable to corporate positions and those applicable to ABS positions.”

    A copy of the comment letter is available on the ESF’s Web site.

    For more information, contact Scott Rankin, Vice President and Executive Director of the Association’s European Office, at +44.20.77.43 93 00.