Section grade Materially non-compliant
Summary The US agencies have implemented a securitisation framework that is on average
more conservative than the Basel standard. Nevertheless, the assessment team has identified a number of divergences between the US rules and Basel standards that for some US banks lead to materially lower securitisation RWA outcomes than the Basel standards. These differences are mainly related to the prohibition on the use of ratings in the US rules. Pursuant to the Dodd-Frank Act, the US rules cannot include provisions related to the Basel RBA, and accordingly provide alternative treatments (such as the simplified supervisory formula, SSFA) under both the credit risk and market risk aspects of the US rules and a hierarchy of approaches that differs from the Basel provisions.
Basel paragraph no (i) Basel II paragraphs 611–18
(ii) Basel III paragraphs 712(iii)–718 Reference in domestic
regulation (i) 78 FR 62232 (Para 141-155) (ii) 78 FR 62260
Findings Under the credit risk and market risk frameworks, the assessment has identified a
number of divergences between the US regulation and Basel requirements, mainly related to the restriction on the use of ratings in the US rules regarding securitisation. While the US rules incorporate the Basel framework’s supervisory formula approach, pursuant to the Dodd-Frank Act, the US rules do not include any provision relating to the Basel RBA, and accordingly provide alternative treatments (such as the SSFA) and
a hierarchy of approaches that are not in line with the Basel provisions.
Materiality Material
With regard to the credit risk framework, estimates and analysis provided by US agencies show that the impact of removal of ratings from the securitisation framework has a material impact on the overall RWA of a number of US banks. Although the SSFA seems to be on average more conservative than the RBA, there is a wide range of results that for few banks is up to 52% in terms of RWA. Further, additional data provided by US show that the SSFA is more conservative than the RBA for all asset classes except for senior RMBS; for some US banks the latter is an important asset class in terms of share of total assets.
With regard to the market risk framework, for the sample of US banks, the deviation results in a maximum reduction in market risk RWA of 24.5%, and an average
reduction of 9.1%. In capital ratio terms, the deviation results in a maximum change of 78.9 bps and an average change of 14 bps across banks in the sample.
Basel paragraph no Basel II paragraphs 554–9
Reference in domestic
regulation 78 FR 62232, Section 141(a), (b) 78 FR 62233, Section 142 (e)
Findings The operational requirements for traditional securitisations are fundamentally based
on US GAAP deconsolidation rules, which fix conditions for determining whether a transfer of securitisation exposures qualifies as a sale. Accordingly, US regulation does not specifically address some specific requirements provided by the Basel standards.
Materiality Not material
Although US regulation does not specifically address some specific requirements provided by the Basel standards, this deviation may be considered not material on a judgemental basis as the US GAAP rules assure a broadly compliance with the condition required by the Basel standards.
Basel paragraph no Basel II paragraphs 577–9
Reference in domestic
regulation 78 FR 62232, Section 141(a), (b) 78 FR 62233, Section 142 (e)
Findings According to the US regulations, the definition of eligible ABCP liquidity facility does
not specifically address all of the Basel provisions; the only requirement explicitly mentioned is in para 578 b) (asset quality test that precludes funding against assets that are in default).
Materiality Not material
The reference is relevant only where a banking organisation provides a liquidity facility to an ABCP conduit that the bank does not consolidate; otherwise, the liquidity facility becomes an intercompany transaction not computed for risk-based capital purposes.
Against this background, the divergence is considered not material as the unused portion of eligible ABCP liquidity facilities that are extended to unconsolidated ABCP conduits as a percentage of total assets is less than 0.8% for all the 14 banks of the panel; in only one case is the exposure higher than 1% in terms of RWA.
Basel paragraph no Basel II paragraph 582
Reference in domestic
regulation 78 FR 62232, Section 141(a), (b) 78 FR 62233, Section 142 (e)
Findings For “non-eligible” servicer cash advance facilities, banking organisations must hold
risk-based capital against the amount of all potential future cash advance payments that they may be contractually required to provide during the subsequent 12-month period under the contract governing the facility. Instead, as clarified in the preamble, for the “eligible” facilities there is no capital requirement. This is equivalent to a CCF = 0% treatment that the Basel standards grant to undrawn SCAs that are
unconditionally cancellable without prior notice.
no legal obligation to, and does not make, advances to the securitisation if the servicer concludes the advances are unlikely to be repaid.” The bank is not obliged only under certain conditions; therefore, the facility is not “unconditionally” cancellable in a strict sense.
Materiality Not material
For one institution in the sample, this divergence results in a 1 bp change in the normalised capital ratio. There was no effect on the other institutions given the extremely small amount of non-reimbursable advances.