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SFA Submits Comment Letter to Federal Banking Agencies on Proposed Capital Regulations

Provided by Structured Finance Association

On January 16, 2024, the Structured Finance Association (SFA) submitted a comment letter on behalf of its 370+ members to the federal banking agencies in response to their proposal to implement the Basel III capital standards. The letter discusses the dramatic changes proposed to the securitization framework and its implications for the cost and availability of credit to U.S. households and businesses. The SFA opposes the proposed rule and has requested that the banking agencies adopt several changes outlined in the letter and re-propose the rule for public comment.

SFA members stressed the following points in their comment letter to the banking agencies:

  • Securitization is an important funding source for U.S. consumer and business loans, and banks are an integral part of the securitization market.

 

  • The SFA opposes the proposed dramatic increase to the p-factor that calibrates capital requirements for securitization exposures from 0.5 to 1.0. The p-factor determines the extent of the securitization surcharge, or the additional capital required for a pool of assets when held in securitized form. The SFA stresses that the proposal included no narrative explanation, data, quantitative analysis, or financial modeling rationale to support the proposed increase in the p-factor.

 

  • The proposed doubling of the p-factor would significantly increase the amount of capital required for securitization exposures. This would make securitization more expensive for banks to participate in as issuers, investors, lenders, and market-makers. This would raise the cost and limit the availability of credit for households and businesses.

 

  • The SFA notes that the proposed changes to the securitization framework exceed Basel III Endgame standards as implemented in the EU, UK, and Canada. The proposal should be aligned with international standards, including providing preferential treatment to certain qualifying securitization transactions.

 

  • SFA urges the banking agencies to undertake a quantitative analysis of securitization calibration across Comprehensive Capital Analysis and Review (CCAR) stress tests and risk weights produced by the securitization framework.