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Treasury recommends that banking regulators rationalize the capital required for securitized products with the capital required to hold the same disaggregated underlying assets.
Treasury recommends that U.S. banking regulators adjust the parameters of both the simplified supervisory formula approach (SSFA) and the supervisory formula approach (SFA).
- The p factor, already set at a punitive level that assesses a 50% surcharge on securitization exposures, should, at minimum, not be increased.
- SSFA should recognize the added credit enhancement when a bank purchases a securitization at a discount to par value.
- Regulators should align the risk weight floor for securitization exposures with the Basel recommendation.
Treasury recommends that bank capital requirements for securitization exposures sufficiently account for the magnitude of the credit risk sold or transferred in determining required capital instead of tying capital to the amount of the trust consolidated for accounting purposes.
Treasury recommends that regulators consider the impact that trading book capital standards, such as fundamental review of the trading book (FRTB), would have on secondary market activity. Capital requirements should be recalibrated to prevent the required amount of capital from exceeding the maximum economic exposure of the underlying bond.
Treasury recommends that the Federal Reserve Board consider adjusting the global market shock scenario for stress testing to more fully consider the credit quality of the underlying collateral and reforms implemented since the financial crisis.
Treasury recommends that high-quality securitized obligations with a proven track record receive consideration as level 2B high-quality liquid assets (HQLA) for purposes of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). Regulators should consider applying to these senior securitized bonds a prescribed framework, similar to that used to determine the eligibility of corporate debt, to establish criteria under which a securitization may receive HQLA treatment.
Treasury recommends that banking regulators expand qualifying underwriting exemptions across eligible asset-classes through notice-and-comment rulemaking.
Treasury recommends that collateralized loan obligation (CLO) managers who select loans that meet prespecified “qualified” standards, as established by the appropriate rulemaking agencies, should be exempt from the risk retention requirement.
Treasury recommends that regulators review the mandatory five-year holding period for third-party purchasers and sponsors subject to this requirement. To the extent regulators determine that the emergence period for underwriting related losses is shorter than five years, the associated restrictions on sale or transfer should be reduced accordingly.
Treasury reiterates its recommendation that Congress designate one lead agency from among the six that promulgated the Credit Risk Retention Rulemaking to be responsible for future actions related to the rulemaking.
Treasury recommends that the number of required reporting fields for registered securitizations be reduced. Additionally, Treasury recommends that the SEC continue to refine its definitions to better standardize the reporting requirements on the remaining required fields.
Treasury recommends that the SEC explore adding flexibility to the current asset-level disclosure requirements by instituting a “provide or explain regime” for pre-specified data fields.
Treasury recommends that the SEC review the three-day waiting period for registered deals and consider reducing, dependent on securitized asset class.
Treasury recommends that the SEC signal that Reg AB II asset-level disclosure requirements will not be extended to unregistered 144A offerings or to additional securitized asset classes.
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