The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Securitization bankers baulk at Basle II

Recent proposals from the Basle Committee on Banking Supervision have dismayed securitization bankers. They believe regulators are taking an unjustifiably punitive approach to the industry.

The latest plans of international regulators for capital adequacy requirements threaten to cripple the securitization industry, bankers reckon. Proposals from the Basle Committee on Banking Supervision would force banks investing in asset-backed securities to hold a much larger amount of capital in reserve than for corporate bonds of the same credit rating.

"The securitization group seems to have set off on its own path, which does not align with the Basle II process at all," says a UK banker.

"The extra capital requirement, which is not justified, will harm securitization unless it is changed," says Mark Nicolaides, a securitization partner at Mayer, Brown, Rowe&Maw. "The regulators are going to impair the ability of people to do deals, and they're going to increase the costs of doing deals."

The rationale of the Basle proposals is to make sure banks put enough aside to cover investment losses. The proposals set a standard rate of 8% as the typical amount a bank should hold against an investment. Then, a multiple known as a risk weighting is applied depending on how risky the product is.

A double-B corporate bond is risk weighted at 150%. So a bank buying such a bond must set aside one-and-a-half times the 8% base rate of capital - $12 million - in reserve for every $100 million it buys.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree