CRD III and CMBS. Nick Stainthorpe

Transcription

1 CRD III and CMBS Nick Stainthorpe

2 CRD III: Introduction Directive 2010/76/EU amending Directives 2006/48/EC and 2009/49/EC as regards capital requirements for the trading book and for resecuritisations, and the supervisory review of remuneration policies The trading book changes effectively bring the trading book treatment of securitisation positions into line with the banking book treatment The introduction of significantly higher risk weights for re-securitisations is key issue for CMBS 1

3 Resecuritisations Orientation diagram BASEL COMMITTEE ON BANKING SUPERVISION (BCBS) EU UK BASEL II Implements Basel II. CAPITAL REQUIREMENTS DIRECTIVE (CRD) Together, the recast Capital Adequacy Directive (2006/49/EC) and recast Banking Consolidation Directive (2006/48/EC) form the CRD. FSA HANDBOOK BIPRU Enhancements to the Basel II Framework (July 2009) Defines resecuritisation exposure and senior resecuritisation exposure. Resecuritisation exposure includes: (i) CDOs of ABS; (ii) securitisation exposures, where the pool contains individual mortgage loans and a single RMBS; and (iii) when an instrument s performance is linked to one or more resecuritisation exposures (eg: credit derivative providing protection for a CDO² tranche). Banks expected to comply by 31 December CRD III Directive 2010/76/EU of the European Parliament and Council amending the CRD as regards capital requirements for the trading book and for resecuritisations and the supervisory review of remuneration policies. Harmonisation of trading book and banking book treatment of securitisations. To apply to new transactions by 1 January FSA CONSULTATIVE PAPER CP09/29 and CP11/09 BCBS rules dealing with resecuritisations EC implementation FSA Consultation on CRD III amendments 2

4 Re-securitisation CRD III implements BCBS July 2009 Paper sometimes referred to as Basel 2.5 To apply from 1 January 2012 without grandfathering (was pushed back by one year) Equivalent of CEBS Guidelines to Article 122a expected from EBA but not received as yet FSA have consulted on implementation in BIPRU through CP09/29 and now CP11/09 3

5 IRB Risk Weights from Basel II Framework 4

6 Re-securitisation: Definition of Resecuritisation Freshfields Bruckhaus Deringer LLP The key issues for parties subject to this regime will be to identify what is a re-securitisation and within that what is a senior/non-senior re-securitisation. The definition of re-securitisation : A re-securitisation exposure is a securitisation exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure. In addition, an exposure to one or more resecuritisation exposures is a re-securitisation exposure. The definition of securitisation : securitisation means a transaction or scheme, whereby the credit risk associated with an exposure or pool of exposures is tranched, having the following characteristics: (a) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures; and (b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; 5

7 Resecuritisations: Definition of senior resecuritisation Freshfields Bruckhaus Deringer LLP The definition of senior re-securitisation: Senior re-securitisation exposures is defined as a resecuritisation exposure satisfying the following two conditions: (a) the exposure is a senior position, and (b) none of the underlying exposures are themselves re-securitisation exposures. This would preclude the situation whereby a bank took a mezzanine re-securitisation exposure, created two tranches (eg a junior tranche of 0.1% and a senior tranche of 99.9%), and claimed that the senior tranche should qualify for the senior column of resecuritisation risk weights. Any re-securitisation exposure where the underlying exposure includes re-securitisation exposures is categorised as non-senior re-securitisation positions for the purpose of the ratings-based approach (RBA). Prevents arbitrage where mezzanine piece is repackaged as senior re-securitisation. 6

8 Resecuritisation: Identification The FSA have provided some guidance on the meaning of re-securitisation: The definition of a re-securitisation exposure captures CDOs of assetbacked securities (ABS) including, for example, a CDO backed by residential mortgage-backed securities (RMBS). There is no materiality threshold provided for by the amendments therefore even if only one of the underlying exposures is a securitisation exposure, any tranched position exposure to that pool is considered a re-securitisation exposure. Furthermore, when an instrument s performance is linked to one or more re-securitisation exposures, generally that instrument is a re-securitisation exposure. Thus, a credit derivative providing credit protection for a CDO tranche is a re-securitisation exposure. So, any exposure to a re-securitisation is itself a re-securitisation exposure. 7

9 Will CMBS of A/B loans be treated as resecuritisations? Freshfields Bruckhaus Deringer LLP Is an A/B loan a securitisation? CP 11/9: Respondents expressed concerns that, in our implementation of a new definition of re-securitisation, we would look to reassess our views on the scope of exposures captured by the CRD definition of securitisation. Commercial Real Estate AB loan structures were highlighted in this regard. It is not our intention to classify exposures in a manner that is inconsistent with the CRD definition of securitisation, and we are not amending the definition of securitisation in the Glossary. But firms should consider the economic substance, not just the legal form, of each exposure to determine whether it is a securitisation or a resecuritisation position. 8

10 Freshfields Bruckhaus Deringer LLP 2010 This material is for general information only and is not intended to provide legal advice. LON