BCBS Revises Basel III Guidelines

The Basel Committee on Banking Supervision (BCBS) has issued revisions to the securitization framework planned to take effect in January 2018 as part of Basel III capital adequacy regulation.

The revisions include changes to the hierarchy of securitization approaches, to risk drivers of those approaches and to the amount of capital firms must have to cover securitization exposures.

The new hierarchy in the revisions to the framework is led by an Internal Ratings-Based Approach dependent on approval of internal models at firms. An External Ratings-Based Approach is second in the hierarchy, which permits the use of credit ratings. That is followed by the Standardized Approach.

The revised hierarchy reduces reliance on external ratings in capital adequacy calculations and simplifies approaches to those calculations, according to a BCBS statement. Added risk drivers include an adjustment to account for the maturity of a securitization, intended to prevent undercapitalization of exposures.

In addition, BCBS and the International Organization of Securities Commissions (IOSCO) issued a guide to identifying simple, transparent and comparable securitizations, that will be open for comment and discussion through February 13.