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Q 44: The agencies seek comment on both of these alternative approaches to guarantees that cover retail exposures. The agencies also invite comment on other possible prudential treatments for such guarantees.

Q 45: The agencies seek comment on this differential treatment of originating banks and investing banks and on alternative mechanisms that could be employed to ensure the reliability of external and inferred ratings of non-traded securitization exposures retained by originating banks.

Q 46: The agencies seek comment on whether they should consider other bases for inferring a rating for an unrated securitization position, such as using an applicable credit rating on outstanding long-term debt of the issuer or guarantor of the securitization exposure.

CFG/RBS Comments See comments to question 43.

Taking each of the points in turn:

  • Originating banks: where a rating agency has been agreed for use within an internal policy as being acceptable, the rating assigned by that agency will always be used if available. If ratings are available from more than one of the agreed rating agencies, the most conservative will be used. Where both internal & external methodologies are available, the bank will use the external rating. The proposal that at least two ratings are required for originating banks may be unattainable. It should be removed.

  • Investing banks: the proposed requirement for the investing bank is acceptable.

  • Inferred ratings: an alternative is to have the home regulator review the inferred rating methodology to ensure the use of a conservative and consistent approach (with that used by external agencies). Periodic benchmarking exercises conducted by the home regulator demonstrate consistency across the UK market for models based ratings methodology.

We would prefer to have other options to infer ratings for an unrated securitization position. The consideration of utilising credit ratings, such as that of the outstanding long-term debt of the issuer or that of a guarantor of the securitisation exposure, would be a welcome flexibility.

The use of a guarantor's credit rating is consistent with that approach used under the IRB credit risk mitigation estimation techniques for unfunded credit risk protection, whereby the bank is permitted to substitute the obligor's PD for the guarantor's PD.


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