European Banking Authority Consults On Draft Guidelines On Implicit Support In Securitizations

On January 20, 2016, the EBA published proposed Guidelines on implicit support for securitization transactions (i.e. support provided by a firm where it is not contractually obliged to do so), as required by the CRR. Examples of implicit support include purchases of deteriorating credit risk exposures from an underlying pool or improvement of quality of credit enhancements through the addition of higher quality risk exposures. The CRR requires that any reduction in capital requirements gained through a securitization must be justified by a corresponding transfer of risk to third parties. The CRR restricts the provision of implicit support, because it does not result in significant risk transfer to third parties, by requiring firms to hold a minimum of own funds against all of the securitized exposures as if they had not been securitized. A transaction is not considered to provide support if it is executed under arm's length conditions and is taken into account in the