High Quality Securitisation: An Empirical Analysis of the PCS Definition

Full paper available here.

William Perraudin

The risk and liquidity characteristics of securitisations vary greatly, posing challenges for investors and regulators alike. Recently, there has been interest in the possibility of identifying, through simple observable characteristics, a category of High Quality Securitisation (HQS) likely to exhibit lower risk and higher liquidity. Such securitisations might prove attractive to investors and merit favourable regulatory treatment. This paper (i) discusses existing ways of classifying securitisations employed by the industry, central banks and regulators and (ii) investigates statistically how securitisations satisfying key candidate characteristics for an HQS definition have performed in the past. We show that securitisations possessing these characteristics have indeed exhibited much lower risk and higher liquidity in recent years.