In this note, we analyze the impact of new Basel capital standards for securitizations, especially “simple, transparent, and comparable” (STC) ones for their impact on U.S. mortgage securitization, the relative competitiveness of different MBS credit-enhancement options, and the prospects for GSE risk-share tranching. We believe the U.S. will advance the changes to the overall framework of ABS capital rules, but not the STC provisions which U.S. regulators believe still give too big a break to structured ABS. Even if the U.S. went all the way, the U.S. leverage and stress-test standards would remain the binding constraint on what banks do or don’t do with regard to residential-mortgage finance.

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