Part III Investment Banking, 18 Securitization and Repackaging

Subject(s):

Credit risk — Basel 2 — Basel 3 — Risk adjusted assets — Securitization vehicles — Basel committee on Banking Supervision

This chapter discusses securitization requirements under Basel 3. The Basel 3 reforms have rewritten the capital treatment of securitisations. However this rewriting sits on top of some major restructuring of the regime effected by Basel 2.5. Given that the Basel Accord is intended to reflect credit risk, it might be expected that the rationale for a separate treatment of securitization exposures would have disappeared, and that exposures to securitization vehicles would be evaluated in exactly the same way as exposures to other types of vehicles, based on credit characteristics. However, the opposite is the case. The chapter begins with an explanation of securitization. It then discusses true sale and derecognition of assets, risk weighting of securitization exposures, weighting holdings of securitization positions, the internal ratings-based approach approach, and revolving credit securitizations.