Basel II securitisation paper expected next week

Global banking regulators hope to issue their working paper on the treatment of asset securitisation under the complex Basel II bank capital accord next week, senior Basel officials said.

The Basel Committee on Banking Supervision, the architect of Basel II, had hoped to issue the paper yesterday with the Basel II third quantitative impact study, or QIS 3, and the committee’s overview of progress with the Basel II accord.

But regulators said the pressure of work involved in getting QIS 3 out to more than 200 banks from over 40 countries resulted in a delay to the securitisation paper. The delay was not caused by any disagreements among the technical experts drafting the paper, they added.

The thorny technical question of how to treat the credit risks to banks of asset securitisation was the last major outstanding issue with the much delayed, risk-based Basel II accord that is aimed at making the world’s banking system safer. Asset securitisation occurs when banks put existing loans and credits into a pool and then issue fresh securities backed by the pool.

The QIS 3 package contains the risk-weightings for allotting protective capital against asset securitisation risks that will appear in the paper. The Basel regulators have developed a new methodology for arriving at the weightings where a securitisation is rated by a leading credit-rating agency. They have also adjusted the formula they previously developed for weighting the risks of those securitisations not rated by the agencies. Next week’s paper will seek feedback from national regulators and the banking industry on the proposals.