The Basel Committee has issued a new consultation trying to provide capital relief for ABS without rewarding banks for originating, holding, or investing in higher-risk paper – a difficult balancing act it has taken on without any indication to us that whatever finally is approved will in fact increase the prospects for U.S. PLS. Basel’s latest action follows final ones late last year that set global regulatory-capital standards for asset-backed securities and posited criteria for “simple, transparent, and comparable” (STC) ABS that might warrant preferential treatment. When Basel set its capital rules – far tougher than the industry wanted – it promised to look at them again in light of the STC standards. It has now done so and, despite urgent European pressure, has conceded only a little bit on the capital front for qualifying ABS, RMBS very much included. Given the hard toll Basel’s fundamental review of the trading-book capital rules imposed on bank ABS capital, we see nothing in these rules for banking-book RMBs that does anything to stoke interest in anything but more GSE and Ginnie RMBS.
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