Capital Relief Archive

How to calculate capital relief under securitization?

This article answers the question how to calculate the capital relief of securitization transaction. This is done in 3 steps: setting the risk of securitized exposure to zero, replacing it by the risk of the tranches in securitization, and finally replacing the risk of the protected tranche by the risk of the protection

Read More…

How to Calculate Effective Number of Exposures?

Effective number of exposures “N” is one of three portfolio-based input parameters for supervisory formula approach. It is the figure determining the concentration of portfolio on a customer level. Find out in this article how the “N” influences the effectively of capital-relief securitization transactions

Read More…

Requirements on eligible guarantee

Which requirements must be fulfilled, if the credit risk of securitization tranche is mitigated by means of the unfunded protection (read another article which risk mitigation techniques exist)? The Capital Adequacy Directive provides the concrete requirements described in CAD 2006-48-EC in ANNEX VIII para 2.1 number 14 .  Unfortunately, CAD provides only the “keywords” which philosophical criteria are valid, but does not explain how to implement them in praxis

Read More…

Which risk mitigation instruments are used under securitization?

ISSUE: under securitization, the portfolio is restructured into 3 tranches (e.g. senior, mezzanine and equity tranche). External investor covers the risk of the e.g. mezzanine tranche, means he provides the risk mitigation instrument covering the risk of the tranche. Which instruments can the investor provide to the bank to cover the risk of the tranche

Read More…

Country Sovereign Credit Ratings

It is relevant to know the ratings of country where you start structuring the securitization. The reason is simple: the senior tranche of securitization will be usually capped in rating by the rating of souvereign. This post is relevant in combination with the post “What is necessary to know about rating grades for securitization?&#

Read More…

What is necessary to know about rating grades for securitization?

Here are the facts relevant to know about the rating agencies to execute the securitization. There are three rating agencies dominating this world: Moody’s, Standard & Poor’s and Fitch. There are different rating types provided by each rating agency. The long-term rating is relevant for calculation of the risk weight, and the short-term rating is relevant for decision if originator can held the deposit out of the cash-covered guarantee or it must be transferred to another, higher rated bank

Read More…

“Inconvenients” of Securitization. Operational requirements on banks

Classifying the deal as securitization causes also several operational „Inconvenients“. Such requirements are legally defined in the Capital Adequacy Directive. First of all, the bank must be able to retain at least 5% economic interest

Read More…

What is securitization? Difference to guarantee

The same question, when the deal is the securitization? Or what is the difference between the securitization and the portfolio guarantee? BACKGROUND: The guarantee Provider (investment bank, supranational institution, etc) sells to the Originator (bank providing loans to the customers) a Protection (in form of guarantee, credit default swap, credit linked note, etc) covering the losses arising under existing or originated in the future Exposure (one single loan or a portfolio of loans)

Read More…

Supervisory Formula Calculator in Excel

Here is the Excel file calculating the Supervisory Formula, together with the VBA function. Please feel free to download and use it! It is regrettable that none of the market participants have published the sample SFA calculation on Internet. At the same time, it is one of the most complex formulas in the financial world

Read More…