Bank and Insurer Capital
Bank-capital regulations, which are vital to the safety and soundness of the U.S. financial system, protect against unintended consequences that impede economic growth.
Overview
SFA monitors the impact of existing and pending regulatory capital and liquidity rules. We focus on the securitization market, bank lending and the availability of credit for consumers and small businesses.
On April 16th the Structured Finance Association (SFA) sent a comment letter to the NAIC’s RBC Investment Risk and Evaluation Working Group (RBC IRE WG) endorsing the Academy of Actuaries’ risk-based capital methodology for broadly syndicated loan (BSL) CLO debt. The letter asked that the proposed C‑1 factors be applied only to BSL tranches for year‑end 2026 and recommended that the NAIC instruct the Academy to develop a distinct modeling approach for middle‑market (MM) CLO tranches, with any changes to MM RBC factors deferred until those tranches can be properly calibrated. It also notes that the RBC IRE WG should break out middle‑market CLOs separately from broadly syndicated loans for risk‑based capital modeling purposes.
A second letter, submitted on April 17th, responded to the NAIC’s proposed LR002 reporting blanks changes. In line with the first letter, SFA supported creating a dedicated reporting line for CLO debt but advocated limiting that new category to BSL CLO tranches for the 2026 year-end reporting cycle. The letter further notes that future updates related to MM CLOs should be reflected once the Academy’s modeling is complete and new factors are calibrated.
Key Points
- Supports adoption of the Academy of Actuaries’ model for BSL CLO tranches and apply the new C-1 RBC factors beginning with year‑end 2026 reporting.
- Recognition of the distinct risk profiles of MM CLOs compared to BSL CLOs and request a separate modeling approach before applying new RBC factors to that sector.
SFA Responds to Basel III Endgame Proposal
Structured Finance Association (SFA) submitted a comment letter to the Federal Reserve, FDIC, and Office of the Comptroller of the Currency in response to their proposed capital amendments to Basel III for institutions with total consolidated assets over $100 billion.
SFA’s letter focuses on the dramatic changes proposed to the securitization framework and the implications of these changes to the cost and availability of credit to U.S. households and businesses. The letter says the proposed increases to required risk-based capital are arbitrary and excessive, and that existing standards already incorporate effective, post-crisis reforms.
The letter demonstrates how the proposed framework is poorly calibrated, less risk-sensitive, and results in a variety of anomalous results. SFA, on behalf of its members, has requested that policymakers adopt the changes outlined in the letter and re-propose the rule for public comment.
“The BASEL ‘Endgame’ proposal is rife with arbitrary increases supported by little to no empirical data,” said Michael Bright, CEO of the Structured Finance Association. “For our industry, chief among these is a doubling of a scaling factor that is clearly meant to be extra punitive to securitization for reasons that have nothing to do with today’s market reality. We strongly encourage the regulators to go back to the drawing board and take seriously the impact these numbers will have on capital formation and our economy.”
SFA would like to thank Mayer Brown and the SFA members who participated in the Basel III Task Force chaired by leaders at Bank of America, Capital One, S&P Global, MetLife, and Wells Fargo.
Publications & Resources
News
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