General remarks 12/05/2015

Transcription

1 Joint response from the Banque de France and the Autorité de Contrôle Prudentiel et de Résolution to the Consultation document of the European Commission An EU framework for simple, transparent and standardised securitisation General remarks 12/05/2015 We welcome the initiative of the Commission to foster the development of securitisation markets. Securitisation could indeed be a useful tool to help financing the economy, as a mean to free regulatory capital and to create liquid assets. It will be particularly accurate in a context of tightening of the capital requirements for banks since it will build a channel between intermediated and market financing. However, in order to find the path to growth, the securitisation market will need to meet the expectations of the different parties involved: originators and sponsors, investors and supervisors. European supervisors expectations are expressed through the SST criteria elaborated at the EBA level. SST qualification should be a pledge of the quality of the securitisation structure, notably concerning the consistency of origination processes and the simplicity of the capital structure. Investors in an SST securitisation should hence be able to focus their due diligence on the quality of the underlying assets. From originators perspective, it should be stressed that only securitisations with significant risk transfer 1 ( SRT ) will alleviate banks balance sheets and potentially help them grant new credit to the real economy. Indeed, significant risk transfer allows the originating bank to benefit from lower capital charges under the solvency ratio. But such securitisations use different structures from those used only for refinancing on the markets since the major part of the risk in the mezzanine tranches has to be sold to investors. The Commission should also be aware that, under the current rules, significant risk transfer is not enough for a securitisation to be also beneficial under the leverage ratio. As a matter of fact, if a bank aims at excluding the securitised assets from its leverage ratio, the securitisation s structure should achieve assets derecognition in accounting too. This means that the junior part has to be sold to investors, which can make the securitisation quite costly for the originator in comparison with simply raising new capital on the markets. A solution would be to modify the delegated act on leverage ratio in order to specify that SRT prudentially deconsolidates securitised assets from the leverage ratio as well as from the solvency ratio. From a macro perspective, considering the aim of developing good quality securitization, the prudential approach for SST securitization should be as close as possible to neutrality for the 1 SRT recognition is governed by CRR rules and EBA Guidelines. It is a prudential concept, independent from accounting rules regarding asset derecognition. It allows the originating bank to replace the risk weighted assets of the securitized exposures by the ones of its remaining exposures on the securitisation to compute its solvency ratio. This may allow the securitising bank to benefit from lighter capital charges although, in accounting, the securitized assets are not necessarily derecognized. 1 / 13

2 system s requirements before and after securitization. For example, if both the originator and investors are in the banking system, the capital charge of the originator before securitization should be equivalent to the capital charge of both the originator and investors after the securitization. The risks associated with a simple capital structure are indeed very limited as long as all SST requirements are met. As a consequence, when investors are outside of the banking sector, the capital charge on the banking system should decrease. Due consideration should be given to calibration issues, as consistency is required if success is expected in developing SST securitization. Question 1: A. Do the identification criteria need further refinements to reflect developments taking place at EU and international levels? If so, what adjustments need to be made? Yes. The first steps taken in the direction of high quality securitisations in Solvency II and in the LCR delegated act went in the right direction but should be further refined in order to create a comprehensive framework for different types of securitisations. The identification criteria of high quality securitisation need further refinements to reflect the work recently done by the EBA (known as simple, standardised and transparent or SST criteria) and also at BCBS and IOSCO levels (known as simple, transparent and comparable or STC criteria). The STS ( Simple, Transparent and Standardised ) criteria that would be finally adopted at EU level should be as consistent as possible with international standards and especially with the future conclusions of BCBS regarding STC securitisations. Any European exception should be justified by a specific situation. Also, it is important that STS criteria are applicable in practice in most jurisdictions. The definition of credit impaired borrower which is already embedded in the criteria for type 1 securitisations in Solvency II and for Level 2B securitisations in the LCR delegated act, and which has been proposed by the EBA in the SST criterion 5 iii, will be problematic in many countries. Indeed, banks would have to check the three-year track record of credit difficulties from each underlying borrower before including it in an SST securitisation. However, although all payment incidents are recorded in a specific database (e.g. known as FICP in France) available to institutions and handled by the Banque de France, French law provides that these incidents are to be removed from the data base as soon as the incident does no longer exist (i.e. due to a debt reimbursement), by virtue of the right to forgiveness (in other words the right to a second chance ). Hence, in France, the financial soundness of a borrower is known at the time of the loan granting and of course at the time of issuance, though the prior credit track record of the borrower is not necessarily available to the financial institutions. This definition of credit impaired borrowers would exclude in many countries all consumer loan securitisations (including auto ABS) and RMBS deals, because it would be impossible for issuers of securitisations to know with certainty if the underlying pool to their issuances does not include this type of exposures. 2 / 13

3 Having highlighted the above, we strongly believe that this criterion should be specified in a more flexible way, in order to adapt to jurisdictions which do not legally allow the types of credit registers referred to within the definition of a credit-impaired borrower, to avoid creating any level-playing-field issues amongst European jurisdictions. This issue was already discussed at the EBA after the recent consultation on SST criteria and it was suggested to specify that this credit history should be taken into account «to the best knowledge» of the originator. Such a drafting should also be included in the Solvency II and LCR Delegated Acts. Furthermore, and due to inherent specificities of certain underlying asset class, it could be relevant to adapt the set of criteria to the asset types. Indeed, as the goal is to provide a more efficient securitisation market to service the real economy, the principle should be that underlying assets should be linked to the real economy. Therefore although granularity should certainly be considered a prime factor determining credit risk for specific consumer asset pools such as RMBS, consumer loans etc.., which are concentrated in one country, it is less easy to achieve for certain other asset classes such as corporates and SMEs where other credit mitigants should be envisaged. B. What criteria should apply for all qualifying securitisations ('foundation criteria')? Foundation criteria, which would apply to all qualifying securitisations, should mostly focus on the quality of the structure. Criteria about the underlying assets quality or the tranches level of seniority should only come into consideration at a second stage ( additional risk factors in the graph proposed in the consultation document) in order to allow for different types of securitisations besides the ones currently most represented on the market. Credit quality criteria of underlying assets, beside consistency of origination processes, should be taken into account in order for the banking or insurer investor to benefit from lower regulatory capital charges. The foundation criteria would hence only allow STS certification, which would be a token of robustness for the market, but would not grant any preferential prudential treatment. These criteria should be a mix of the ones identified in Solvency 2 and in the EBA proposal and could be refined in a modular approach to be adapted to the specific concerns of banks or insurers. Question 2: A. To what extent should criteria identifying simple, transparent, and standardized short-term securitisation instruments be developed? What criteria would be relevant? In our opinion, and as proposed within the joint BCBS-IOSCO Task Force on Securitisation Markets public consultation, ABCP devoted to financing the real economy (typically multiseller ABCP conduits) should be eligible to the STS framework and should then potentially qualify to attract less capital charge. This kind of conduits should actually be well distinguished from arbitrage conduits (e.g. SIVs) that were involved in the crisis: their purpose is to refinance on the market short term purchased receivables. Sponsoring banks grant liquidity facilities in order to secure a timely payment to the commercial paper holders. 3 / 13

4 Specific criteria should be developed for these conduits, as the EBA is currently trying to do. These criteria should take into account the type of underlying assets (and their heterogeneity) and the specific credit enhancement benefitting to these assets, namely overcollateralization. They should also consider that a CP investor is more preoccupied by the sponsoring bank and the quality of the liquidity facilities than by the full disclosure of underlying assets (which may be problematic because of confidentiality agreements and because it is a revolving portfolio of short term assets). B. Are there any additional considerations that should be taken into account for shortterm securitisations? As stated in question 1.A due to inherent specificities of some ABCP underlying asset class (i.e. trade receivables), it could be relevant to adapt the set of STS criteria as regards asset types. ABCP deserve specific criteria that would simply adapt the general STS criteria to their peculiarities. The type of conduits we would like to promote would only refinance short term assets (excluding arbitrage SIVs). The criteria should take into account the impact on liquidity for the sponsoring bank. They should also be adapted to the two types of investors on ABCP positions: the sponsoring bank, through the off-balance-sheet liquidity facilities it provides, and the CP holders on the market. Question 3: A. Are there elements of the current rules on risk retention that should be adjusted for qualifying instruments? No, the 5 % minimum risk retention principle should be kept and generalized for all issuers. On the other hand, STS criteria should include that the relevant retentions rules are appropriately applied by the originator. B. For qualifying securitisation instruments, should responsibility for verifying risk retention requirements remain with investors (i.e. taking an "indirect approach")? Should the onus only be on originators? If so, how can it be ensured that investors continue to exercise proper due diligence? Risk retention compliance is a shared responsibility: the retention requirement should be clearly introduced for all originators in order to prevent an originate to distribute phenomenon in Europe disclosure regarding risk retention should be harmonized and easy to check by investors end supervisors; it should be part of the continuous transparency requirement; investors should verify, for qualifying securitisation instruments, the compliance with retention requirements 4 / 13

5 if delegated to a third party the STS certification process (see Question 4 below), should encompass the check the fulfilment of the risk retention requirements. Question 4: A. How can proper implementation and enforcement of EU criteria for qualifying instruments be ensured? Two options could be considered concerning STS certification : the first one would only rely on the securitisations originators and investors and the second one would involve an independent third party, under the supervision of a European authority, Option 1: Certification by both the originators and investors, under supervision from competent authorities On the one hand, an independent certification process could lead to excessive reliance from market participants on STS qualification that could play in the end a similar role to external ratings before the crisis. Leaving originators and investors checking the compliance with STS criteria would eliminate this risk. However, this implies that the criteria are not ambiguous but are tick the box like so that there is no room for interpretation in their implementation. Supervisors should be kept informed of any new type of transaction, and have the right to deny STS qualification ex-ante and/or ex-post. In whatever case, supervisors would anyway intervene ex-post in the compliance process, through dedicated inspections. In this option, competent authorities are both national authorities supervising the originators and national (market) authorities supervising the independent third party in charge of the governance of the securitisation vehicle. Indeed, the EBA has published a report in December 2014 on securitisation risk retention which describes two approaches to certify risk retention requirements, an indirect approach which places the onus on investors and a direct approach which places the onus on the originator, initial lender or sponsor. These two approaches have been tested and have proven to be efficient; therefore, we would also consider that the certification could be based upon the knowhow of these two approaches. Option 2: Certification by a European independent third party On the other hand, having a European entity which would ensure a homogenous interpretation and application of STS criteria across all European Union jurisdictions and over the life of each transaction would greatly enhance the management of the whole process and provide a clear European dimension to the STS certification. Moreover eligibility of the securitisation to the STS criteria could be made available to the market as a whole, in a similar way to the list of ECB-eligible assets list (EADB) on the ECB website. The certification on the basis of a clear set of unambiguous criteria by such an independent third party (regulated by ESMA) would also provide comfort to the originators, the investors and the supervisors in terms of the quality, consistency and impartiality of the analysis Nonetheless, this compliance check should in no circumstance substitute the performance of a proper due diligence by investors, even though the latter could be more focused then on the credit quality of the underlying assets than on the structure. B. How could the procedures be defined in terms of scope and process? Under option 1, the European legislation defining STS criteria should be precise enough to give a clear guidance to originators and investors. STS compliance should be disclosed in the 5 / 13

6 transaction s documentation so that originators engage their responsibility towards investors. Originators and investors should monitor this compliance over time (in investor reports for example). STS qualification could be challenged or denied by competent supervisors, even expost. Under option 2, the European Commission could give a mandate defining the scope and the process to an independent entity. There should be a monitoring from the dedicated authority to check STS compliance over time. The procedures should foresee the process in case of a breach in compliance either because of a wrong appreciation at the origination or because of a change in the securitisations structure during its life. C. To what extent should risk features be part of this compliance monitoring? In our opinion, investors should be fully responsible as regards their due diligence as they would be for any other type of financial instruments and by it avoid any replica of the Subprime crisis. If it is the case that the respect of STS criteria provides the originator or regulated investors with an advantage in term of prudential requirement, the compliance of any risk feature participating in the definition of the STS criteria should be assessed on a continuous basis during the whole life of the transaction Question 5: A. What impact would further standardisation in the structuring process have on the development of EU securitisation markets? B. Would a harmonised and/or optional EUwide initiative provide more legal clarity and comparability for investors? What would be the benefits of such an initiative for originators? C. If pursued, what aspects should be covered by this initiative (e.g. the legal form of securitisation vehicles; the modalities to transfer assets; the rights any subordination rules for noteholders)? D. If created, should this structure act as a necessary condition within the eligibility criteria for qualifying securitisations? We share the opinion that the development of the EU market for securitisation would benefit from further harmonization, However the creation of an EU regime seems a bit ambitious as regards national jurisdictions specificities (consumer law, recovery law, bankruptcy law etc.). Indeed, the most efficient way of providing more legal clarity and comparability for investors may be to develop an E.U common master agreement which would be the main corpus of the legal documentation and add a specific provisions annex to this master agreement which would detail any specificities of the securitization which cannot be common to all (i.e.: specific aspects related to underlying-asset, national jurisdictions specificities etc.). By creating this harmonized contractual framework, it would standardize the structure s documentation while respecting the market standard. From the supervisors viewpoint, further standardisation would be very helpful since it should allow for an acceleration of the process of Significant Risk Transfer validation. This means 6 / 13

7 that not only the securitisation s documentation but also the structures (tranches, waterfalls, etc.) would be less creative. Question 6: A. For qualifying securitisations, what is the right balance between investors receiving the optimal amount and quality of information (in terms of comparability, reliability, and timeliness), and streamlining disclosure obligations for issuers/originators? Qualifying securitisations should provide standardised investor reports and a simple access to the underlying assets. The investor reports should entail cash flow reconciliation between underlying loans and issued notes. B. What areas would benefit from further standardisation and transparency, and how can the existing disclosure obligations be improved? STS criteria should leave no room for interpretation and should be disclosed under standardised formats. C. To what extent should disclosure requirements be adjusted especially for loan-level data to reflect differences and specificities across asset classes, while still preserving adequate transparency for investors to be able to make their own credit assessments? Disclosure requirements should be standardised by modules considering STS criteria will have a common module ( foundation criteria ) and complementary ones adapted to various asset classes. Question 7: A. What alternatives to credit ratings could be used, in order to mitigate the impact of the country ceilings employed in rating methodologies and to allow investors to make their own assessments of creditworthiness? The original rating without sovereign cap should be published in order to allow the investors to build their own mind regarding the securitisation s quality. In the banking prudential framework, Europe could decide not to use the External Rating Based Approach, as other jurisdictions will do since they cannot rely exclusively on external ratings anymore. Banks would then use only internal ratings for the SEC-IRBA or standardised risk weight for the SEC-SA. Nevertheless, a more frequent use of internal ratings for securitisation positions would require the use of proxies of IRB parameters (probability of default and loss given default) at portfolio level. This could be achieved in a prudent way only by establishing first clear and consistent rules on how to compute these proxies at Basel or at European level. Another solution would be to allow the use of uncapped ratings in the SEC-ERBA for STS securitisations. B. Would the publication by credit rating agencies of uncapped ratings (for securitisation instruments subject to sovereign ceilings) improve clarity for investors? Yes. 7 / 13

8 Question 8: A. For qualifying securitisations, is there a need to further develop market infrastructure? A centralised database for the documentation of STS transactions would be useful. B. What should be done to support ancillary services? Should the swaps collateralisation requirements be adjusted for securitisation vehicles issuing qualifying securitisation instruments? We are not sure whether swaps collateralisation requirements really hamper the securitisation market. Any measure on this issue should rely on an in-depth impact study. C. What else could be done to support the functioning of the secondary market? Attention should be paid between the capital charges given to securitisation positions in the trading book vs in the banking book. Trading book positions should theoretically attract lower capital charges in order to create an active and liquid secondary market for securitisations. Question 9: With regard to the capital requirements for banks and investment firms, do you think that the existing provisions in the Capital Requirements Regulation adequately reflect the risks attached to securitised instruments? The existing CRR requirements regarding securitisation are not risk sensitive enough by not discriminating enough between highly rated securitisations, which can all benefit from a low risk weight floor (7% in IRB and 20% in SA). Moreover they entail cliff effects and possibilities of arbitrage around Kirb. This is why the securitisation framework has been revised in Basel recently. Under the current CRR framework, STS deals may be penalised mainly by a sovereign rating cap. But the main problems for STS securitisations may arise in the future from the transposition in the EU of the revisions to the securitisation framework adopted by the Basel Committee in The new Basel framework is indeed much more conservative for all types of securitisations and may be punitive for the most resilient structures that proved their soundness through the crisis. Indeed, securitisation assets which comply to both STC and SST criteria should be calibrated closer to neutrality of capital before and after securitisation, and have a lower Risk Weight floor than the 15% currently stipulated in the Basel revised framework for securitisation. Adjustments to the Basel proposal should rather proceed by haircuts to the floor and risk weights given by the different approaches than by a modification of the supervisory formulas parameters. Beneficial treatment should be extended to mezzanine tranches and not be limited to senior tranches only. This would be the simplest and clearest solution, considering the political motivation for a dedicated framework for STS securitisations. 8 / 13

9 Question 10: If changes to EU bank capital requirements were made, do you think that the recent BCBS recommendations on the review of the securitisation framework constitute a good baseline? What would be the potential impacts on EU securitisation markets? Basel Accords should remain the basis for EU bank capital requirements. Nevertheless, they should take into account STS securitisations specific risk features. Hence, in our opinion, if changes to EU bank capital requirements were made, they should be based upon the future amended BCBS recommendations on the review of the securitisation framework (which is planned for the end of this semester) and not the December 2014 BCBS document Revisions to the securitisation framework as the latter is not adequate enough and does not discriminate STS or STC securitisations (see above). Question 11: How should rules on capital requirements for securitisation exposures differentiate between qualifying securitisations and other securitization instruments? Capital requirements should clearly favour STS securitisations. The goal is to promote and encourage proper origination practices, alignment of interest, relevant independent research and appropriate analysis to reflect investment objectives. We also need to promote a more efficient securitisation market to service the real economy; the principle should be that the underlying assets should be linked to the real economy and/or used to fund the real economy. However, considering the current conservatism of the Basel Revised framework for securitisation, it does not seem necessary to increase capital requirements for non-sts securitisations. Capital charge is essential to incentivize investors into buying STS securitisations instead of other types of securitisations. A label would not be enough to re-launch the market. Indeed, such a label already exists through PCS and did not have much impact on the market considering the current uncertainty regarding the evolution of capital charges. Regulators should keep in mind the prudential treatment for investors of comparable products, like covered bonds that benefit in the EU from a preferential 10% risk weight. Question 12: Given the particular circumstances of the EU markets, could there be merit in advancing work at the EU level alongside international work? We feel that for the sake of both harmonisation and clarity amongst both E.U market participants and worldwide market participants it is essential not to segregate the EU securitisation market. Any EU initiative should advance alongside international work. STS criteria (EBA) should not differ too much from STC criteria (BCBS-IOSCO). Nevertheless, advancing work at the EU level 9 / 13

10 without waiting for the conclusions of the international works can have a positive impact in terms of European influence on international negotiations and may contribute to harmonising both positions in the end. Question 13: Are there wider structural barriers preventing long-term institutional investors from participating in this market? If so, how should these be tackled? Standardisation of securitisation structures would probably facilitate investments by long term institutional investors since it would reduce the costs of risk analysis. Question 14: A. For insurers investing in qualifying securitised products, how could the regulatory treatment of securitisation be refined to improve risk sensitivity? For example, should capital requirements increase less sharply with duration? For insurers, the Solvency II Delegated Regulation already provides for a special treatment of qualifying securitizations (although they are not labelled SST or STC but Type 1) and the stress factors for the capital charges have already been greatly decreased for them and far below the recommendations of EIOPA. Therefore, the risk sensitivity of the stress factors for Type 1 securitizations is unlikely to be improved by decreasing them further. Capital charges for Type 1 securitisations CQS 0 (AAA) CQS 1 (AA) CQS 2 (A) CQS 3 (BBB) EIOPA s proposal end ,3% 8,45% 14,80% 17% Charges in the Delegated Regulation in ,1% 3% 3% 3% The other way around, the risk sensitiveness can be improved by increasing the stress factors relating to credit quality steps 2 and 3 which received the same capital charges as CQS 1 (3%) while the credit worthiness of the structured products is different. Although we are strongly against an additional decrease of the stress factors, we can accept a less sharp increase of the capital charges with the duration from 10 years duration onward, such that this relief is tailored to foster a better cash-flow matching with long-term liabilities. B. Should there be specific treatment for investments in non-senior tranches of qualifying securitisation transactions versus non-qualifying transactions? The most senior position in the hierarchy of claims provides additional protection against miscalculations of the loss rate in the asset pool. Many non-senior American subprime RMBS received for example initially high ratings and suffered later substantial losses. 10 / 13

11 Qualifying securitisations should in principle decrease the risk of miscalculations through the elimination of non-performing loans and a greater transparency at loan level. Therefore, there could be an argument to provide for lower capital charges for non-senior tranches of qualifying securitisations than for non senior non-qualifying transactions. In addition, should an insurer want to invest in non-senior tranches, it is preferable that this asset meet the SST requirements. However, non-senior tranches can be dramatically affected as soon as the default rate of underlying loans varies compared to the initial anticipation. In particular, a scenario implying even a slight loss on the most senior tranche of a securitization generally implies a 100% loss in value for less senior tranches. For this reason, we see non-senior tranches as fundamentally different from most senior tranches, and because of this difference it seems difficult to justify using an approach similar for non-senior tranches as for senior tranches. Moreover, the reasons why EIOPA didn t provide for a specific treatment of non-senior Type 1 securitisations should be kept in mind: - Feasibility: the amount of spread data available to calibrate stress factors for nonsenior tranches is very low and the ability to make a reliable risk-sensitive calibration is very uncertain. - Added value: as pointed out by the insurance industry (Insurance Europe/Oliver Wyman, 2013), insurers are not inclined to invest in non-senior tranches. Conversely, they are interested by investing in the most senior position to get additional returns without dramatically increasing the riskiness of their portfolio. To conclude, a reduction of capital charges for qualifying mezzanine tranches could be investigated provided that all of the following conditions are met: - additional criteria ensuring an appropriate protection of the mezzanine tranche against an adverse scenario (e.g. sufficiently broad junior tranche considering expected and unexpected losses in the underlying loan portfolio) are included in the insurance regulation framework; and - the calibration of the capital charges for qualifying mezzanine tranches is based on a large set of reliable and publicly available data. Question 15: A. How could the institutional investor base for EU securitisation be expanded? Non-qualifying securitisations should not be stigmatised in order not to discourage specific deals adapted to the needs of sophisticated parties. B. To support qualifying securitisations, are adjustments needed to other EU regulatory frameworks (e.g. UCITS, AIFMD)? If yes, please specify. Concepts and definitions regarding securitisation should be harmonised throughout the different EU legislations. Market rules and prudential rules for banks and insurers should be consistent on the whole. 11 / 13

12 Question 16: A. What additional steps could be taken to specifically develop SME securitisation? In order to develop SME securitisation which is essential as regards providing a more efficient securitisation market to service the real economy, and due to some inherent specificities of some underlying asset class (i.e. trade receivables), it could be relevant to adapt both sets of STS and STC criteria as regards asset types. Moreover, considering specificities of SME securitisations (IT developments to comply with the true sale requirement etc.), synthetic securitisations could be a useful tool to allow banks to achieve Significant Risk Transfer without selling the securitized assets. This is one of the reasons why synthetic securitisations could be included in STS securitisations with specific criteria. Furthermore, the ABCP, that may also favour corporates and SME receivables financing, should be eligible to both STS and STC frameworks and should then qualify to attract less capital charge. Even though, ABCP are related to the short-term securitisation market it would help their market liquidity should they be included within the scope of both STS and STC securitisations. In addition, regarding their underlying assets (i.e. trade receivables) ABCP are very useful for financing the real economy. B. Have there been unaddressed market failures surrounding SME securitisation, and how best could these be tackled? One of the major issues as regards SME securitisation its rating/assessment costs. Furthermore, it seems crucial to have an E.U definition of SMEs. C. How can further standardisation of underlying assets/loans and securitization structures be achieved, in order to reduce the costs of issuance and investment? D. Would more standardisation of loan level information, collection and dissemination of comparable credit information on SMEs promote further investment in these instruments? The European Data Warehouse (the loan by loan database) already provides an SME template, this loan by loan template is both used for Eurosystem eligibility purposes and for market purposes. Question 17: To what extent would a single EU securitisation instrument applicable to all financial sectors (insurance, asset management, banks) contribute to the development of the EU's securitisation markets? Which issues should be covered in such an instrument? For the sake of consistency and in order to avoid loopholes and regulatory arbitrage, we should make sure that the securitisation regulatory framework is consistent across sectors in terms of definitions (what is a securitisation, what are the actors and processes?) and in term of concepts (retention, significant risk transfer, STS criteria). We should accordingly adopt a holistic approach for the basis. 12 / 13

13 On the other hand, we should use a modular approach to deal with specific goals; for instance, we may have specific additional requirements for liquidity purpose or solvency or leverage requirements (depending of the sector of the regulated entity). This could be achieved through a dedicated European securitisation regulation that would amend the current framework (including CRR/CRD4, Solvency 2, the delegated acts on liquidity and leverage, ) in order (i) to make sure that all definitions and concepts are consistent (ii) define the concept of STS securitisation and (iii) specify appropriate amended prudential requirements for STS securitisations. Question 18: A. For qualifying securitisation, what else could be done to encourage the further development of sustainable EU securitisation markets? One of the objectives of re-launching securitisation markets is to help banks transferring risk and thus reducing their capital requirements, so that they can grant new credits to finance the real economy. One of the constraints on banks prudential balance sheet is actually the leverage ratio. However, under current European rules, to benefit from a securitisation of a portfolio under the leverage ratio, a bank should probably sell on the market all the tranches of the securitisation. Else, it would not achieve full derecognition of the securitised assets in accounting and these assets would still be taken into account to calculate the leverage ratio, even though they are excluded from the calculation of the solvency ratio, thanks to the Significant Risk Transfer. This makes securitisation particularly costly in comparison with other sources of funding. Actually, the securitized portfolio should deliver enough revenue to feed the spread to the investors in each tranche of the securitisation, the most junior ones being the most costly ones. This condition is difficult to achieve on lower risk portfolios since they usually deliver lower spreads. Consequently, it could be useful to clarify European rules concerning the impact of SRT under the leverage ratio and stipulate, at least for SRT securitisations, that SRT has an impact under both solvency and leverage ratios, notwithstanding the accounting treatment of the securitized assets. B. In relation to the table in Annex 2 are there any other changes to securitization requirements across the various aspects of EU legislation that would increase their effectiveness or consistency? A first step towards consistency would be to make sure that all the existing requirements regarding securitisation born by the different pieces of European legislation are consistent with one another. 13 / 13