Regulatory capital requirements for securitizations
- John Wiley & Sons
- Publication Type:
- Credit Securitisations and Derivatives: Challenges for the Global Markets, 2013, 1, pp. 343 - 356
- Issue Date:
Asset securitizations are one of the most significant developments in financial intermediation in recent years. Financial institutions use vehicles such as asset-backed securities (ABSs), collateralized debt obligations (CDOs) or mortgage-backed securities (MBSs) to restructure the asset risks of their portfolios and transfer these to investors. Under regulations which are currently implemented, banks may apply the following three approaches: at present two different ways for financial institutions that have received the approval to use the IRB Approach to determine regulatory capital for securitized assets are provided: the Ratings Based Approach (RBA) and Supervisory Formula Approach (SFA). Non-IRB banks (banks that use the Standardized Approach (SA) for their calculations of regulatory capital for their credit exposures) are required to apply the SA to calculate capital requirements for their securitization exposures. The SA is also based on external ratings but is less sophisticated than the RBA approach.
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