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EBA launches a consultation on large exposures and proposes to change the treatment of securitisation
EBA last Friday launched an consultation paper entitled “
EBA consultation on draft Technical Standards to determine the overall exposure to a client or a group of connected clients in respect of transactions with underlying assets
“. In the paper the EBA proposes to treat all tranches of securitisations as “first loss” tranches, giving no credit to subordination. Although this sentence is infelicitous, closer reading of the proposal indicates that this approach is only relevant to the calculation of exposure limits. The EBA explains why it is proposing this treatment for exposure calculation and does not call into question the efficacy of subordination in improving the credit risk of a securitisation tranche. The deadline for responses is August 28.
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