Synthetic issuers, it is time to get ready

It is now official: the new guidelines on the STS criteria for on-balance-sheet securitisations will apply from 9 December 2024. After a consultation phase in 2023 in which all major market participants including PCS participated, the Final EBA Report on the guidelines was published on 27 May 2024 and scheduled to become applicable two months after its translation into all 23 European languages. These translations are now all done. They can be downloaded from the EBA website, and in each case , 9 December 2024 is the date they come into force. Quoting the EBA: "the Guidelines on the STS criteria […]

In one of those highly technical yet genuinely impactful regulatory decisions, the EBA issued an opinion backing a decision of CONSOB on collateral for synthetic transactions. Briefly, you cannot have an STS synthetic transaction unless it is either in the form of a credit linked note (CLN) or it is cash collateralised. In Italy, for legal reasons, CLNs do not work. Further, the rules prohibit the cash collateral from being held by the originating bank unless that bank is at least CQS2. Again, in Italy, because of issues relating to rating agencies’ sovereign caps, banks are not CQS2. This meant […]

Following their consultation last August the EBA has just published the final draft regulatory technical standard (“RTS”) on the capital treatment of synthetic excess spread. Although a seemingly exceedingly dry and technical subject, the impact of this paper on the European banking industry should not be underestimated. In the last few years, synthetic securitisations have become a key capital management tool for an increasing number of European banks. Without such a tool, the risk of the exiguity of bank capital, in the near future, constraining the credit available to European borrowers was substantial. The regulatory treatment of synthetic excess spread […]

The European Banking Authority has just launched a consultation on the guidelines for the STS criteria for on-balance-sheet securitisation. Given the growth of on-balance-sheet (synthetic) securitisations since the inclusion in Q2 2021 of synthetic securitisations to the STS framework this is quite important. We will, in due course, review the paper and publish our views. A public hearing will take place via conference call on 30 May 2023 from 14:30 to 15:30 (CEST). The deadline for this consultation is the 7 July, PCS will, of course, be responding.

Busy Week for the EBA - Homogeneity(Final draft) RTS and Green Lending

Last week was a busy week for the EBA when it comes to items of importance to securitisations. First, the EBA published a final draft RTS on homogeneity for synthetic securitisations. In PCS’ view, this is a thoughtful and altogether excellent proposal. First, it leaves unchanged the division for corporate loans between SMEs and larger corporates but without an artificial line being drawn between the two. On the contrary, the EBA makes it clear that the dividing line should lie where it is drawn by the bank’s own underwriting procedures (and therefore as approved by their prudential regulator. as part […]

PCS responds to the EBA's consultation on the draft "homogeneity" RTS

PCS filed its response to the EBA's consultation on the draft "homogeneity" RTS. Broadly, PCS is very supportive of the EBA's overall approach. We are especially in agreement with the idea of keeping a single definition of "homogeneity" for all types of STS transactions, whether true sale or synthetic. We also agree with the need to clarify the definition of "large corporate". We do, however, depart from the EBA in the best way to do this and have concerns with the proposed solution being the only solution on offer. Our response also draws attention to the vital importance of the […]

PCS responds to EBA Consultation on Synthetic Express Spread

PCS filed its response to the European Banking Authority's consultation paper on synthetic excess spread. Although this might appear the most abstruse of technical issues, fit only for quants and CRR geeks, the truth is - as PCS sets out in the introduction to its response - that this highly technical matter will have substantially damaging effects on the European economy as a whole if not properly calibrated. Unfortunately, PCS feels that the current EBA proposals are indeed not only miscalibrated but would result in the virtual eradication of the use of synthtetic excess spread in Europe. This, we feel, […]

The European Banking Authority has just launched a consultation on the treatment of "synthetic excess spread" or "SES". The issue of the capital treatment of synthetic excess spread in the context of synthetic STS securitisation is a topic that is as arcane as it is important. We will not review here the arguments and possible approaches as this would take way more space that is appropriate for a news item. To summarise, though, in a synthetic securitisation the originator and the investor can agree to an amount which will be deducted from any losses suffered on the securitised pool before […]

The European Banking Authority has just launched a consultation on the homogeneity of the underlying exposures in STS securitisation. The consultation is addressing the issue of the homogeneity in the context of synthetic STS securitisation. Although the scope is extended to also cover on-balance-sheet (synthetic) securitisations, at the same time it establishes the same criteria for the assessment of homogeneity for all securitisations. More specifically, given the relevance of corporate and SME loans in the context of synthetic securitisations, adjustments have been made to the type of obligor to reflect the current market practices and the credit risk assessment approaches […]

EBA publishes excellent report of "Green Securitisation"

Today the European Banking Authority released its Report on Developing a Framework for Sustainable Securitisation. This report was requested by the co-legislators who asked the EBA to outline how they would envisage a regime for green securitisation. Although PCS still has to review the report in detail, a first look suggests that the EBA should be commended for the logical, coherent and fair approach it has brought to bear of this subject. First, the EBA has concluded that there is no need or rationale for having a conceptually different approach to the definition and regulation of green securitisations from that […]

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Synthetic issuers, it is time to get ready

Good news for Italian banks

EBA publishes the RTS on “synthetic excess spread” achieving a sensible and balanced approach

EBA publishes consultation paper on Guidelines on the STS criteria for on-balance-sheet (synthetic) securitisation

Busy Week for the EBA - Homogeneity(Final draft) RTS and Green Lending

PCS responds to the EBA's consultation on the draft "homogeneity" RTS

PCS responds to EBA Consultation on Synthetic Express Spread

EBA publishes consultation on synthetic excess spread

EBA publishes consultation on updated homogeneity

EBA publishes excellent report of "Green Securitisation"