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Basel ii and Securitization
Securitization was an efficient
and proven vehicle for
regulatory capital arbitrage after Basel I.
Securitization is the process through
which financial and non-financial assets are
packaged into securities that are then sold to investors.
The cash flows generated by the underlying assets are used to
pay principal and interest on the
securities in addition to transaction expenses.
All
current or future cash flows can be securitized, from mortgage
loans, auto loans, credit card receivables, and student loans to
aircraft and equipment leases, franchise
loans, state tobacco settlement payments, and royalty
payment streams.
The
securitization market is becoming more sophisticated.
Securitization
transfers credit and interest rate
risk, increases liquidity, and improves capital ratios.
In
securitization we try to separate the credit risk of the asset
pool that is being securitized from the credit risk of the
originator. The originator sells a pool of assets to a
Special Purpose Entity (SPE), which
then issues securities to investors.
Basel ii
recognizes both,
Traditional and Synthetic Securitizations
In a
traditional securitization,
the originating bank
transfers
a pool of assets that it owns to a special purpose vehicle.
The assets are placed beyond the control of the originating bank,
and the originating bank must obtain a legal opinion that the
assets are beyond the reach of the bank and its creditors.
In a
synthetic securitization,
the originating bank transfers only the credit risk associated
with an underlying pool of assets through the use of credit-linked
notes or credit derivatives. The
originating bank
retains legal ownership of the pool of assets.
Synthetic securitizations must be such that they replicate a
transfer of assets. So, for example, any condition that transfers
risk back to the originating bank or increases the cost to the
originating bank as a result of any asset deterioration is not
permitted. Basel II contains a list of particular clauses that may
not be included in the instruments that establish the credit risk
transfer. Under Basel II, an originating bank must obtain a legal
opinion that confirms the enforceability of the contracts
establishing the structure.
Credit Risk — Securitisation Framework
A. Scope and definitions of transactions covered under the
securitisation framework
538. Banks must apply the securitisation framework for determining
regulatory capital requirements on exposures arising from
traditional and synthetic securitisations or similar structures
that contain features common to both.
Since securitisations may be structured in many different ways,
the capital treatment of a securitisation exposure must be
determined on the basis of its economic substance rather than its
legal form. Similarly, supervisors will look to the economic
substance of a transaction to determine whether it should be
subject to the securitisation framework for purposes of
determining regulatory capital.
Banks are
encouraged to consult with their national supervisors
when there is uncertainty about whether a given transaction should
be considered a securitisation. For example, transactions
involving cash flows from real estate (e.g. rents) may be
considered specialised lending exposures, if warranted.
539. A
traditional securitisation
is a structure where the cash flow from an underlying pool of
exposures is used to service at least two different stratified
risk positions or tranches reflecting different degrees of credit
risk.
Payments to the investors depend upon the performance of the
specified underlying exposures, as opposed to being derived from
an obligation of the entity originating those exposures.
The stratified/tranched structures that characterise
securitisations differ from ordinary senior/subordinated debt
instruments in that junior securitisation tranches can absorb
losses without interrupting contractual payments to more senior
tranches, whereas subordination in a senior/subordinated debt
structure is a matter of priority of rights to the proceeds of
liquidation.
540. A
synthetic securitisation
is a structure with at least two different stratified risk
positions or tranches that reflect different degrees of credit
risk where credit risk of an underlying pool of exposures is
transferred, in whole or in part, through the use of funded (e.g.
credit-linked notes) or unfunded (e.g. credit default swaps)
credit derivatives or guarantees that serve to hedge the credit
risk of the portfolio.
Accordingly, the investors’ potential risk is dependent upon the
performance of the underlying pool.
541. Banks’ exposures to a securitisation are hereafter referred
to as “securitisation exposures”.
Securitisation exposures can include but are not restricted to the
following:
asset-backed securities, mortgage-backed securities, credit
enhancements, liquidity facilities, interest rate or currency
swaps, credit derivatives and tranched cover.
Reserve accounts, such as cash collateral accounts, recorded as an
asset by the originating bank must also be treated as
securitisation exposures.
542. Underlying instruments in the pool being securitised may
include but are not restricted to the following: loans,
commitments, asset-backed and mortgage-backed securities,
corporate bonds, equity securities, and private equity
investments. The underlying pool may include one or more
exposures.
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Become a
Certified Basel ii Professional (CBiiPro)
Basel ii Distance Learning and
Certification
The Cost:
US$ 297
What is included in this
price:
A.
The official presentations we use in our
instructor-led classes (1880 slides)
The
presentations have been updated after the Basel ii Amendment (July
2009, Enhancements to the Basel II framework, Supplemental
Guidance)
B. Up to 3 Online Exams
There is only
one exam you need to pass, in order to become a
Certified Basel ii
Professional (CBiiPro).
If you fail, you must study again
the official presentations, but you do not
need to spend money to try again. Up to 3 exams are included in
the price.
To
learn more you may visit:
www.basel-ii-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf
www.basel-ii-association.com/Certification_Steps_CBiiPro.pdf
C. Personalized Membership Certificate printed in full colour.
Processing, printing, packing and posting to your office or home
To learn more:
www.basel-ii-association.com/Distance_Learning_Online_Certification.htm
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