STC Comments due to Basel Committee by February 5th

With some degree of fanfare, last summer EU regulators introduced proposed rules for Simple, Transparent and Comparable  (STC”) securitisations.  One theme was to create a platform for more favorable capital treatment for STC compliant securitisation programs.  If you have taken the time to read through these rules or guidelines, you might conclude that they are anything but simple.  Nevertheless, given the seemingly bottomless quagmire that EU regulators seemed to be in at the time (they have for years struggled to find a way to re-open the EU structured finance markets), this news seemed like a breath of fresh air.  For the first time in several years, issuers, bankers and investors began to feel like there was real hope for a much stronger revival in issuance levels.

However, if you speed ahead to November of 2015, the Basel Committee on Banking Supervision (“BCBS”) weighed in on the conversation with their views on how the proposed STC rules would impact capital requirements for both originators and investors.  These views came in the form of a “Consultative Document” which begins to shed light on the potential benefits (lower capital ratios) for securitisations which comply with the STC rules.  Comments are due to the BCBS by February 5th.

Based on our read through the Consultative Document, we are not sure if the BCBS makes the picture any clearer, as it relates to establishing a clear understanding of the real benefits associated with putting the hard work into ensuring a securitisation is issued as STC compliant and remains that way.   We will leave that interpretation to others with better insight but you could be left wondering if the benefits of the capital reductions could be overtaken by the costs of compliance with STC rules.

We are wondering if others may be coming to the same conclusion.

 

About markferraris
Managing Principal Orchard Street Partners LLC

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