IIF Authors

Status: Will be live at 08/24/2020 13:57

IIF Joint Response to BCBS CP On Capital Treatment of NPL Securitizations 

The Institute of International Finance (IIF), together with the Global Financial Markets Association, the International Association of Credit Portfolio Managers, and the Structured Finance Association, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) Consultation Paper on the topic of Technical amendment on capital treatment of securitizations of non-performing loans on August 21.

In the consultation paper the BCBS acknowledged “the potential mis-calibration of risk weights applicable” in this context and the need to address that. However, there are concerns regarding the proposals, which could bring about higher risk weights than currently apply, leading both to greater divergence between risk and regulatory capital, an unlevel playing field, greater (not less) dependence on the bank/sovereign nexus and less risk-sensitivity in the framework.

The industry response letter discusses the areas of concern and makes a series of recommendations to achieve a better balance between the capital requirements and the development of a common set of rules that will encourage the growth of securitization as a tool to help resolve the challenges of non-performing loans on the balance sheets of banks. Given the economic outlook, the letter also questions the timing of the technical amendment and urges the BCBS to take into account the re-calibration work proposed by the EBA.