Capital Relief Archive

Defining the Restructuring Credit Event in Securitization

The insolvency or the failure-to-pay is transparent and objectively verifiable credit event triggering the loss in synthetic securitization. But the investors may be very suspicious about restructuring of loans, also referred to as “forbearance”, “renegotiation”, “modification”, “concession” or “refinancing”. The argument is that the bank may subjectively send the borrower into the default to the disadvantage of the investor. The supervisor is also watchful regarding the restructuring of loans from another perspective. In 2013-2014 asset quality review process, the European Central Bank identified that the forbearance banking practices can be potentially misused to delay the loss recognition and masking asset quality deterioration

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Securitization Rating Mapping under the CRR article 270

Almost one year after the deadline, EBA provided in Mai 2015 the mapping between the external assessments of the credit rating companies and the CRR credit quality steps. All new small credit agencis are treated equally to the Big Three (S&P, Moody’s, Fitch) and DBRS. Nothing changed since 2006, and will remain unchanged till 2018 when the new securitization framework will come into effect. 

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Supervisory Formula Approach for Specialized Lending Portfolio

How to calculate the RWA relief in an unrated synthetic securitization of IRB project finance portfolio under slotting approach? For example in a synthetic CMBS risk sharing trade? The regular readers know the Supervisory Formula approach can be used for IRB portfolios if the bank can produce estimates of PD. In case of specialized lending, the banks are encouraged to use expected losses prescribed in CRR and not to rely on own PD estimates. It nevertheless does not hinder the SFA application

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Fist Loss Guarantee as the instrument of EU Cohesion Policy

Regular readers know the European Investment Fund, the EIF, is the active investor in the First Loss Piece tranches in Europe on behalf of the European Commission (read more on “EIF as the key first loss investor in the name of EU Structural funds“). During the EU operational period 2009-2013, EIF has provided the first loss guarantees on up to 100 equity tranches to 60 financial institutions in 33 countries. This article provides more details about the EU sponsored securitization activities of the

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EIF as the key first loss investor on behalf of EU Structural funds.

Who is the most active first loss investor in Europe? It could the European Investment Fund (EIF), on average investing in 20 equity tranches per year. Within of 5 years in the period 2009-2013, EIF has signed up to 100 first loss protection agreements with 60 financial institutions in 33 countries. EIF acts on behalf of the EU Structural Funds providing cash coverage. This article describes the role of EIF as the equity tranche investor on the European synthetic securitization market

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New credit rating companies under CRR article 136

One of the objectives of the CRR directive is to enhance competition in the rating market by introducing the smaller credit rating companies. Instead of Big Three (S&P, Moody’s, Fitch) and DBRS eligible for RWA calculation, now the issuers can use more than 20 providers. Out of that, only two new agencies can evaluate securitizations. This article reviews, whether the rating landscape has changed at all

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How to calculate RWA in IRB rated securitization under the article 261?

Capital relief in securitization is calculated by replacing the risk-weighted assets (RWA) of the securitized portfolio by RWA of the securitization tranches. This article answers the question how to determine the risk weight of a securitisation tranche of IRB portfolio under Rating Based Method specified in the article 261 of CRR. The intrigue is that in the middle of 2015 there are no explicit instructions how to use article 270. EBA indicates that AAA credit rating for securitization may get the risk weight in direction of 100%

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Comparing Securitisation Tranches and Bank Liabilities

Securitization in true-sale and synthetic format follows the same idea as the liabilities’ side of a bank. The tranching in senior, mezzanine and equity risk can be compared with a virtual bank consisting only of a securitized portfolio on the active side of the balance and several tranches on the bank liabilities side. Understanding of the nature of riks in securitization tranches requires the perception how the liabilities’ of the bank absorb different risk types. Let’s start with an analysis of this question

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How to calculate risk weighted assets in securitization under internal rating based approach?

Capital relief in securitization is calculated by replacing the risk-weighted assets (RWA) of the securitized portfolio by RWA of the securitization tranches. This article answers the question how to get the risk weight of the tranches in case the originating bank uses the internal rating based approach (IRB)

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How to calculate risk weighted assets in securitization under standardized approach?

To get the capital relief in securitization, the risk weighted assets (RWA) of securitized portfolio must be replaced by RWA of the securitization tranches. This article answers the question how to get the risk weight of the tranches if the originating bank uses the standardized approach

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