EBA欧洲银行-EBA-DP-on-STS-framework-for-synthetics-EBA-public-hearing-October-2019-final_36页_1mb

EBA Discussion Paper on STS Framework for Synthetic Securitisation

Core Content

This document outlines the European Banking Authority (EBA) discussion paper on the development of a Simple, Transparent and Standardised (STS) framework for synthetic securitisation, particularly focusing on balance-sheet synthetic securitisation. It is part of the Securitisation Regulation (EU) 2017/2402, and includes recommendations, market analysis, and a rationale for potential regulatory treatment of synthetic securitisation.

Main Views and Key Information

Regulatory Mandate

• Article 45 of the Securitisation Regulation requires the EBA to publish a feasibility report on synthetic securitisation by 2 July 2019, with the European Commission to submit a legislative proposal by 2 January 2020.
• The STS criteria should not apply to arbitrage synthetic securitisation.

Rationale for Synthetic Securitisation

• The EBA acknowledges the progress made in its 2015 report and recommends extending the STS framework to balance-sheet synthetic securitisation to promote the financing of the real economy, especially SMEs.
• The STS synthetic framework is considered to have positive impacts on financial stability, capital markets, and the real economy.
• However, the framework is not yet developed globally (by IOSCO or BCBS), and there are risks for the banking sector.

Market Developments

• Volume and Investor Base:
  • Since 2008, 244 balance-sheet synthetic securitisation transactions have been issued in Europe.
  • In 2018, 49 transactions with a total volume of 105 billion EUR were initiated.
  • Arbitrage deals have almost disappeared from the market.
• Transaction Type:
  • Private/bilateral transactions dominate the market, with 90% of credit protection being funded credit protection.
  • Public investors are limited, with 4.5% being 0% risk-weighted multilateral development banks (e.g., EIB/EIF).
• Asset Types:
  • Large corporates and SMEs are the most common asset classes, followed by trade finance.
  • There is a trend toward diversification, including specialised lending, commercial real estate, residential real estate, trade receivables, auto loans, micro loans, and farming loans.
  • Retail exposures like RMBS and consumer loans are less common in synthetic securitisation.

Performance Analysis

• Arbitrage synthetics have performed worse than balance-sheet synthetic securitisation.
• Balance-sheet synthetics have better performance than traditional securitisation for all asset classes and rating grades.
• Senior tranches show zero default and loss rates on a significant majority of reported transactions.
• Default and loss rates are lower than comparable portfolios, but highest for SMEs and specialised lending.

STS Criteria for Synthetic Securitisation

Simplicity

• The EBA proposes 13 criteria for simplicity, focusing on credit risk mitigation, representations and warranties, eligibility criteria, homogeneity, no transferable securities, no resecuritisation, underwriting standards, self-certified loans, borrower's creditworthiness, originator's expertise, and no defaulted exposures.
• These are adapted or replaced from the traditional securitisation criteria to better suit synthetic structures.

Standardisation

• 23 criteria are proposed for standardisation, including risk retention, interest rate and currency risk mitigation, reference interest payments, loss allocation and amortisation, early amortisation provisions, transaction documentation, servicer expertise, and reference register.
• These are adapted from traditional criteria to reflect the unique features of synthetic securitisation.

Transparency

• 11 criteria are proposed for transparency, covering historical performance data, external verification, liability cash flow model, environmental performance, and compliance with transparency requirements.
• These align with traditional transparency standards but are tailored to synthetic securitisation.

Credit Events

• The following credit events must be covered:
  • Failure to pay of the underlying obligor
  • Bankruptcy of the underlying obligor
  • Restructuring of the underlying exposure
• Credit events must be clearly documented, and forbearance measures should not prevent their trigger.

Credit Protection Payments

• Payments should be based on actual realised losses.
• Interim payments should be made 6 months after a credit event.
• Final payments are based on the actual loss recorded by the originator at the time of close-out or final settlement.

Early Termination Events

• Criteria for early termination events are outlined, with a focus on procedural clarity and risk mitigation.

Synthetic Excess Spread

• Excess spread is an important element for loss absorption.
• No commitment to a fixed amount of excess spread is allowed for STS synthetic securitisation.

Credit Protection Premiums

• Premiums should be contingent, not guaranteed or upfront.
• Rebate mechanisms and return of premiums are not allowed.

Eligible Credit Protection and Collateral

• Guarantees by 0% risk-weighted supranational entities or private investors through fully collateralised guarantees are allowed.
• Collateral must be of high quality, either in the form of 0% risk-weighted debt securities (with conservative haircuts) or cash held with a third-party credit institution.
• The originator must obtain an opinion from qualified legal counsel on the enforceability of credit protection in relevant jurisdictions.

Questions for Public Hearing

• Question 3: Should the analysis of historical performance be agreed upon? Additional information is requested to complement the analysis.
• Question 4: Is synthetic securitisation useful and necessary for originators and investors? What are the hurdles for market development?
• Question 5: Is there a rationale for preferential capital treatment? What are the supporting reasons?
• Question 6: What is the potential impact of STS synthetic securitisation on traditional securitisation?
• Question 7–9: Opinions are requested on the technical applicability and relevance of the criteria for simplicity, standardisation, and transparency.
• Question 10: Agreement is sought on the specific criteria for synthetic securitisation.
• Question 11: Should the criterion 36 on eligible credit protection and collateral be adopted? Market practice and pros/cons are requested.
• Question 12: Suggestions are asked for any additional specific criteria to be included in the STS framework.
• Question 13–16: The EBA seeks views on whether a differentiated regulatory treatment for STS synthetic securitisation is justified, its scope, structure, and impact on third countries.

Conclusion

The EBA aims to develop a regulatory framework that supports synthetic securitisation while ensuring transparency, simplicity, and standardisation. The framework is intended to promote the financing of SMEs and align with ongoing regulatory developments. However, the lack of global harmonisation and potential risks for the banking sector remain concerns. The EBA also invites public feedback on the proposed criteria and the impact of introducing a differentiated regulatory treatment.