Risk Control is working with a Quant Group comprising securitisation specialists from several banks on analysing the Basel Committee’s recent proposals on regulatory capital for securitisations. The Committee’s proposals include a hierarchy of approaches.
Of these, the key central approach, the Modified Supervisory Approach is controversial because it is (i) highly complex, (ii) makes assumptions that are inconsistent with assumptions made elsewhere in the Basel framework, and (iii) is extremely non-neutral in that it implies capital for all the tranches that is a large multiple of the capital required for holding the underlying securitisation pool.
In response, the industry has proposed an alternative Arbitrage Free Approach (AFA) to securitisation capital. The AFA builds directly on the assumptions employed in the existing Basel IRBA capital charges for on-balance sheet loans. It is capital neutral before add-ons or model risk charges are included, and is much simpler to derive and implement computationally than the MSFA.
Duponcheele, Perraudin and Totouom-Tangho (2013a) “A Principles-Based Approach to Regulatory Capital for Securitisations” sets out the basic AFA while Duponcheele, Perraudin and Totouom-Tangho (2013b) “The Simplified Arbitrage-Free Approach” develops a Simplified AFA that could be applied by investor banks that have less information about the underlying pool exposures. Further research papers consider maturity adjustments and the effects of pool granularity and heterogeneity within the AFA framework.
Maturity Effects in Securitisation Capital: Total Capital Levels and Dispersion Across Tranches Georges Duponcheele, William Perraudin, and Daniel Totouom-Tangho
September 2013
Granularity, Heterogeneity and Securitisation Capital Georges Duponcheele, William Perraudin, Alastair Pickett, and Daniel Totouom-Tangho
September 2013
Reducing the Reliance of Securitisation Capital on Agency Ratings Georges Duponcheele, William Perraudin, and Daniel Totouom-Tangho
February 2014
Calibration of the Simplified Supervisory Formula Approach Georges Duponcheele, William Perraudin, and Daniel Totouom-Tangho
March 2014
Calibration of the CMA and Regulatory Capital for Securitisations Georges Duponcheele, Alexandre Linden, William Perraudin, and Daniel Totouom-Tangho
April 2014
High Quality Securitisation: An Empirical Analysis of the PCS Definition William Perraudin
July 2014
Quantitative Impacts of BCBS 269 Securitisation Capital Approaches William Perraudin
August 2014
Securitisation Purchases by the ECB – What is “Senior Enough”?
September 2014
How to Revive the European Securitisation Market: a Proposal for a European SSFA Georges Duponcheele, Alexandre Linden, and William Perraudin
November 2014
How to Revive the European Securitisation Market: a Proposal for a European SSFA Georges Duponcheele, Alexandre Linden, and William Perraudin
October 2015
