FIS Horizons 2023 Brochure - Riding the wave - Flipbook - Page 13
Securitization and
capital requirements
– a match (not) made
in Basel?
Tauhid Ijaz
Partner, London
Steven McEwan
Partner, London
George Kiladze
Senior Associate, London
The updated Basel III framework is the principal response of the Basel
Committee to the global financial crisis.
The updated framework makes wide-ranging
changes to the perceived shortcomings of the
previous regime. Although the framework has
retained the optionality for banks to select an
internal model and assess the credit risk of
particular positions based on supervisorapproved and operationally sound internal
models, the imposition of a new “output floor”
has reversed some of the advantages of this
flexibility, and may result in banks no longer
having the incentive to commit to further due
diligence where their capital benefits are
capped. This article assesses the Basel
Committee’s changes to the credit risk regime
in the structured finance space, and considers
whether some of the changes will need to be
further calibrated or adjusted to ensure that
the right balance is struck between a
prudential and resilient banking system, and
one which levies arduous requirements that
stifles access to capital. In particular, the
article also assesses the differences between
STS and non-STS transactions for both
internal models and the standardised
approach, as well as their impacts on the
output floor and the supervisory
parameter “p”.
Read the full article on Engage here.
Article correct as of 11 November 2022.
Note: we note that since the publication of
the article, a response has been provided by
the Council of the EU in respect of the EU
Banking Package 2021, which broadly agreed
with the comments by the market participants
and a number of industry bodies to delay the
implementation of a number of Basel III
requirements. Please see our separate article
here.
