Forslag til europaparlaments- og rådsforordning om endring av forordning (EU) nr. 575/2013 med hensyn til tilpasninger til papiriseringsregelverket til støtte for økonomisk gjenoppretting fra covid-19-pandemien
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards adjustments to the securitisation framework to support the economic recovery in response to the COVID-19 pandemic
BAKGRUNN (fra kommisjonsforslaget, engelsk utgave)
Reasons for and objectives of the proposal
Regulation (EU) No 575/2013 of the European Parliament and of the Council, known as the Capital Requirements Regulation (hereinafter “the CRR”), establishes together with Directive 2013/36/EU, known as the Capital Requirements Directive (hereinafter “the CRD”), the prudential regulatory framework for credit institutions operating in the Union. The CRR and the CRD were adopted in the aftermath of the 2008-2009 financial crisis to enhance the resilience of institutions operating in the EU financial sector, largely based on global standards agreed with the EU’s international partners, in particular the Basel Committee on Banking Supervision (BCBS).
The CRR has been subsequently amended on several occasions to tackle remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensure institutions' resilience. One set of amendments, contained in Regulation (EU) 2017/2401, has implemented the revised securitisation framework adopted by the BCBS in December 2014 ("the revised Basel framework"). The revised Basel framework has been designed to reduce the complexity of the regulatory capital requirements applicable at the time, reflect better the risks of positions in a securitisation and allow institutions to determine capital requirements through own calculations and on the basis of the information available to institutions, thus reducing reliance on external ratings.
In order to further promote the development of a high quality EU securitisation market based on sound practices, Regulation (EU) 2017/2401 also included amendments aiming at providing for a more risk-sensitive regulatory treatment for simple, transparent and standardised (STS) securitisations in line with the standards on the alternative capital treatment for “simple, transparent and comparable” securitisations published by the BCBS in July 2016. The eligibility criteria for STS securitisations are laid down in Regulation (EU) 2017/2402 that also provides for a set of common requirements on risk retention, due diligence and disclosure for all financial services sectors.
The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures are having a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a fall in income. Public authorities at Union and Member State levels have taken decisive actions to support households and solvent undertakings to withstand this severe but temporary slowdown in economic activity and the liquidity shortages that it will cause. Thanks to the reforms undertaken in the aftermath of the 2008 financial crisis, institutions are today well capitalised and much more resilient than they were in 2008. This enables them to play a key role in managing the economic shock that stems from the COVID-19 pandemic. Nevertheless, uncertainty related to the pace of recovery of economic activity will inevitably have an impact on the banking sector, including for the expected increase in the volume of non-performing loans due to the deep recession caused by the COVID-19 pandemic crisis.
Securitisation can play an important role in enhancing the capacity of institutions to support the economic recovery, providing for an effective tool for funding and risk diversification for institutions. It is therefore essential in the context of the economic recovery post COVID-19 pandemic to reinforce that role and help institutions to be able to channel sufficient capital to the real economy. Building essentially on recent work carried out by the EBA, this result can be achieved through three targeted amendments aiming at increasing the overall risk-sensitivity of the EU securitisation framework that would make the recourse to the securitisation tool more economically viable for institutions whithin a prudential framework adequate to safeguard the EU financal stability.
First, it is necessary to provide for a more risk-sensitive treatment for STS on-balance-sheet securitisation, in line with the EBA recommandation included in its “Report on STS framework for synthetic securitisation”. Based on an extensive analysis of the on-balance-sheet synthetic securitisation market developments and trends in the EU, including data on the historical default and loss performance of the synthetic transactions, the report recommends the establishment of a cross-sectoral EU framework for STS on-balance-sheet securitisation that is limited to on-balance-sheet synthetic securitisation and is based on a common set of eligibility criteria. It also recommends a targeted differentiated prudential treatment for STS on-balance-sheet securitisation exposures, taking into account in particlar the reduced agency and modelling risk compared to non-STS on-balance-sheet synthetic securitisation exposures.
The alignment of the prudential treatment is also widely acknowledged as a necessary step to further encourage institutions to bear the costs incurred to comply with the STS criteria when structuring the securitisation transactions.
Second, it is necessary to remove the existing regulatory constraints to the securitisation of non-performing exposures (NPEs) embedded in the current framework. As highlighted in the EBA Opinion 2019/13 on the regulatory treatment of NPE securitisations, the current framework does not incorporate the specific features of NPE securitisation, thereby leading to excessive capital requirements for this category of exposures, particularly under the Securitisation Internal Ratings Based Approach (SEC-IRBA) and the Securitisation Standardised Approach (SEC-SA). The excessive conservativeness of the framework is due to the fact that it has been designed having exclusive regard to the specific risk drivers of performing loans. It is therefore proposed to amend the treatment of NPE securitisations by providing for a simple and sufficiently conservative approach based on a flat 100% risk weight applicable to the senior tranche of traditional NPE securitisations and on the application of a floor of 100% to the risk weights of any other tranches of both traditional and on-balance-sheet synthetic NPE securitisations that remain subject to the general framework for the calcualtion of risk-weighted exposures. The proposed treatment is aligned with the main elements of the approach currently being finalised by the BCBS.
Third, it is proposed to amend Article 249(3) which introduces an additional eligibility criterion for the recognition of unfunded credit protection for institutions applying the standardised approach to calculate capital requirements for securitisation exposures. Specifically, it imposes a minimum credit rating requirement for almost all 9 types of providers of unfunded credit protection, including central governments. This provision appears to be inconsistent with the general credit risk mitigation rules set out in the CRR, with the objectives of that Regulation, but also with the new international standards set by the revised Basel III framework imposing a minimum credit rating requirement only to a limited set of protection providers in case of securitisation exposures. This amendment will enhance the effectiveness of national public guarantee schemes assisting institutions’ strategies to securitise NPEs in the aftermath of the COVID-19 pandemic.
These proposed changes, together with the proposed changes to Regulation (EU) 2017/2402, will enable institutions to maintain a high volume of lending to the economy in the coming months and therefore will provide an important contribution to the absorption of the impact of the shock of the COVID-19 crisis.
As such, and compared to the current regulatory framework, the changes will reinforce the role of securitisation as a tool available to institutions to maintain and possibly even enhance their lending capacity in two ways:
·by facilitating the recourse to this technique to offload NPEs that can be expected to grow in the aftermath of the crisis. By doing so, institutions will be able to better spread the risk to other financial actors and ultimately reduce regulatory capital constraints stemming from the impact of the high volume of NPEs, while maintaining high prudential standards; and
·by implementing a more risk-sensitive treatment of the senior tranche held by the originator institution in case of STS on-balance-sheet securitisation. As pointed out by many stakeholders, the development of STS eligibility criteria would not be sufficient 'per se' to achieve the objective of making the compliance with these criteria economically viable if the introduction of the new criteria is not accompanied with a more risk-sensitive prudential treatment in the area of capital requirements, better reflecting their specific features.
The more risk-sensitive treatment for NPE securitisations and for the senior tranche of STS on-balance-sheet securitisations are set out in the present proposal, while the eligibility criteria for the latter type of securitisations, together with other cross-sectoral provisions, are contained in Regulation (EU) 2017/2402.