Quantitative Impacts of BCBS 269 Securitisation Capital Approaches

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William Perraudin

This note presents comparisons of risk weights calculated using three approaches proposed in the recent Basel consultative paper on securitisation capital, BCBS 269. These approaches are the Internal Ratings Based Approach (IRBA), the External Ratings Based Approach (ERBA) and the Standardised Approach (SA).

The data we employ is supplied by a group of eight GFMA member banks and comprises capital estimates and other data fields for 4,614 individual securitisation tranches. We compare the capital implied by the different approaches, focussing on two dimensions of consistency: (i) comparisons of average risk weight levels for particular asset classes and (ii) correlations of individual tranche risk weights implied by the approaches.

We find that the average levels of capital for asset classes are quite different when one compares IRBA, ERBA and SA risk weights for particular asset classes. Some discrepancies in average capital levels are partly reduced when one limits attention to tranches issued since 2010.

We show that the different approaches, and in particular the IRBA and ERBA, yield quite different rank orderings and hence low rank order correlations for regulatory capital. This suggests that the proposed approaches do not satisfy the principle of Comparability advocated by BCBS (2013a), a recent Basel paper on desirable characteristics of capital regulations.