Regulators in Europe are split about easing capital charges for synthetic securitizations that are labeled “simple, transparent and standardized” (STS). A draft report from the European Banking Authority (EBA) currently proposes to extend the label to include on-balance sheet synthetic securitizations, whereas the current regulation is usually reserved only for true sale securitizations. With the report in its consultation phase until November 25, it is unknown how the EBA will ultimately rule on the proposed extension. “There is no agreement among the EBA and various national competent authorities about granting preferential capital treatment to STS for synthetics,” says one European bank senior structurer, quoting a regulatory source. “The EBA got enough support to recommend STS for synthetics but not enough to recommend preferential capital treatment.” While uncertainty remains, banks and investors say lighter capital charges could entice banks to issue more deals and in greater volume.

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