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The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) specifying the determination by originator institutions of the exposure value of synthetic excess spread (SES).
The extension of the Simple, Transparent and Standardised label to on-balance-sheet securitisations, as part of the Capital Markets Recovery Package, was accompanied by a capital charge addressing prudential concerns related to the use of SES in synthetic securitisations. The SES designated by originator institutions to cover for the losses of the securitised exposures shall be considered a securitisation position by originator institutions.
These draft RTS specify the calculation of the components of the exposure value of this position which should include the SES designated for past and current periods that is still available to absorb losses and any SES contractually designated for future periods. A derogation is included from that exposure value in the specific case of the SES designated for future periods that does not encumber the originator institution’s income statement in a manner similar to an unfunded guarantee, subject to certain conditions. This derogation aims at aligning the treatment of the excess spread generated in synthetic and traditional securitisation, where this does not pose prudential concerns.
Finally, in order to ensure a continuation of existing securitisation transactions, a grandfathering provision has been introduced for synthetic transactions featuring SES, where the originating institution fulfilled the requirements of Article 248(1)(e) of CRR in accordance with the supervisory practice adopted by the relevant competent authority.