PCS welcomes the Basel Committee’s work on a new securitisation framework. In particular, PCS believes the introduction of the concept of “high-quality securitisation” as the starting point of such a framework is a major positive development.
PCS does have some strong reservations though about the new proposed framework. In particular PCS believes:
(i) the concept of “high-quality securitisation” should be grounded in the lessons of the crisis and also encapsulate the “qualitative” elements that the crisis has shown are the hallmarks of resilient asset-backed securities;
(ii) that the calibration of the RRBA and the MSFA should be based on the historical data gathered through a period of severe economic stress and not through a series of assumed parameters;
(iii) historical data for securitisations should be analysed through the filters of the lessons of the crisis, so that “high-quality securitisations” can, like other assets classes such as corporate bonds or covered bonds, be calibrated against their own performance;
Also PCS has some material concerns:
(i) about the severity of the bifurcation proposed in Hierarchy B and the punitive nature of the treatment of tranches that do not meet the definition of “high quality” solely as a result of being the junior tranche to a senior “high quality” tranche and believe this is not warranted by the data;
(ii) over some of the technical assumptions used in the proposed calibrations;
(iii) that the outcome of the proposed new framework for high-quality securitisations would not meet the principle that all assets classes must be treated consistently in the entire Basel framework;
(iv) that some of the technical assumptions’ severity could be motivated by the regulatory reaction to the performance of securitisations that did not meet the “high-quality” definitions and that this could result in a framework that is not consistent with the need to balance prudential requirements with economic needs, without sacrificing either.