Now it's up to the EU Commission: On 12 December 2022, the Joint Committee (JC) of the ESAs published its report on the Call for Advice on securitisation regulation (see >> news article of 12 December 2022). Already in November, the TSI participated in an open letter to the EU Commission (for details see >> news article of 4 November 2022). Among other things, it was suggested that a reduction of the p-factor (non-neutrality factor) would be necessary when introducing CRR III. This should avoid additional capital requirements for securitisations due to the introduction of the output floor, as the current regulations do not adequately take into account the risk contained or weight it overly conservative.
Proposed capital relief through the ESAs
This point is also taken up by the JC of the ESAs. It proposes to lower the minimum risk weights for senior tranches, which are retained by the originators. This proposal is to be welcomed in principle but ignores the planned introduction of the output floors under CRR III, which eventually stipulate that the capital requirements under the internal approach (SEC-IRBA) may not be lower than 75% of the standardised approach (SEC-SA). Due to the very conservative orientation of the CRR with regard to the calculation of capital requirements for securitisations, the above-mentioned positive effect would thus probably not come to bear. On the contrary, the capital requirements for securitisations would increase even further.
Against the background of the present call by politicials and central bankers for reviving the EU securitisation market (see >> news article of 1 February 2023), this cannot be the solution!
Recommendations for Trilogue on the EU Banking Package
We highly recommend this point be addressed in the trilogue on the EU Banking Package. In this context, it is gratifying(?) that, according to our information, the current draft of the CRR III contains a proposal to halve the p-factors for calculating the output floor for securitisation positions. However, this would hardly provide any capital relief, as the adjustment only relates to the calculation of the corresponding floors and not to the calculation of the capital requirement itself. This approach would only help prevent the capital requirements from increasing even further. Especially against the background of the consistently good performance of securitisations in Europe, we strongly recommend pursuing this approach. It should be mentioned that the SEC-ERBA, which has to be applied, for example, to the for Germany very important segment of Auto ABS, has to be considered as well in terms of the above-mentioned adjustments. Since the SEC-ERBA does not contain a p-factor, a corresponding adjustment must be developed here.
Call to action
In their Call for Advice on securitisation regulation, the ESAs argue that further-reaching adjustments to the capital requirements for securitisations must be made in consultation with the Basel Committee. However, in our view, the current overly conservative securitisation regulation also allows for more far-reaching advances at EU level without violating the Basel principles. We therefore advise to reconsider such steps, as an adjustment via the Basel Committee would come too late with regard to the short-term financing needs in the market. We are confident that the EU Commission will make a proposal to improve the framework conditions that goes beyond the position of the ESAs and which serves as a starting point for the upcoming discussions with Council and Parliament.