Reflecting problems identified in comments on a 2012 proposal to rewrite the capital standards for asset-backed securities (ABS), the Basel Committee has revised its approach and again solicited public comment on it.  Like the 2012 rule and the new U.S. Basel III requirements, the revised approach continues to take a far tougher stand on ABS than the Basel II standards.  However, the floor below which ABS risk-based capital may not fall has been slightly lowered from the initial proposal in an effort to promote high-quality ABS in sectors such as small-and-medium sized business and mortgages.  The revised proposal also generally reduces capital for ABS below the initial proposal and seeks to simplify the new standards by creating a “hierarchy” of calculation methodologies, charts with which to look up likely capital, and use of simplifying assumptions that Basel continues to fear might reintroduce risk, especially for complex ABS.

The full report is available to retainer clients. To find out how you can sign up for the service, click here