Q 47: The agencies seek comment on the appropriateness of basing the risk-based capital requirement for a securitization exposure under the RBA on the seniority level of the exposure.
We see this as good practice, appropriate and consistent with other regulators’ approaches to calculating regulatory capital under the RBA methodology.
Q 48: The agencies seek comment on how well this approach captures the most important risk factors for securitization exposures of varying degrees of seniority and granularity.
We believe this approach captures the important risk factors for securitization exposures, in so far as it is an effective means of driving out undue concentrations within the tranche and establishing an appropriate view of the granularity of the relevant tranches.
Q 49: The agencies seek comment on suggested alternative approaches for determining the N of a re-securitization.
The home regulator should drive model approval for a models-based approach for IRB status banks, with appropriate input from the wider regulatory college. If such an approach was not possible, it would be useful to have consistency with the UK rules; the FSA prescribed approach for the calculation of N in the case of a re-securitization: [BI-PRU 9.11.17 (R) - March 2006]. “In the case of resecuritisation, the firm must look at the number of securitisation exposures in the pool and not the number of underlying exposures in the original pools from which the underlying securitisation exposures stem. If the portfolio share associated with the largest exposure, C1, is available, the firm may compute N as 1/C1.”
Q 50: The agencies have not included this concept in the proposed rule but seek comment on the prevalence of eligible disruption liquidity facilities and a bank’s expected use of the SFA to calculate risk-based capital requirements for such facilities.
We would support changes that drive consistency in international implementation. In this instance, these facilities are widely used in the European market. In such circumstances, the FSA ask that liquidity facilities pass an eligibility test set out in BI-PRU 9.10.10 (R). The SFA calculation and the use of the 20% CF (conversion factor) appear to be consistent with BI- PRU 9.11.25 (R) and is therefore appropriate in this case.
Q 51: The agencies seek comment on the appropriateness of these additional exemptions in the U.S. markets for revolving securitizations.
Our objective is to drive broad consistency between the US and EU rules, which is achieved as the proposed exemptions mentioned on NPR page 289, are similar to those stated under BI-PRU 9.12.8 (R).