Looming Basel 3.1 Rules Could Incentivize More Bank Securitization
The upcoming implementation of Basel 3.1 by regulators around the world could affect banks' use of securitization for both capital relief and funding.
Higher capital charges could incentivize more use of securitization to manage risk-weighted assets through so-called significant risk transfer (SRT) transactions.
However, such transactions will likely become more challenging and costly than under current rules, given that Basel 3.1 also changes capital charges on the resulting securitization exposures.
Relative shifts in the regulatory treatment of assets pre- and post-securitization could also affect transactions issued for funding purposes, even if capital charges are not banks' primary consideration.
Based on typical current IRBA risk weights for banks in the European Union. Applies output floor effect to credit risk charges independent of other risk categories. IRBA--Internal ratings-based approach. Source: S&P Global Ratings.
