As part of the three currently proposed amendments to the European Unions (EU) capital requirement directive (CRD), one change specifically deals with changes to resecuritizations transactions.
The new language used in the latest CRD for the first time makes a clear distinction between ABS and resecuritizations, Henderson Global Investors analysts said.
The proposals suggest the retention of the existing risk weight matrix for securitizations but inclusion of the introduction of a second table for resecuritizations.
From a pure ABS perspective, this may be construed as a positive as it sets out a clear distinction between standard ABS deals and more highly structured leveraged repackagings, Henderson analysts said. However, it may have potentially serious capital implications for some banks that have jumped headlong into re-securitization activity.
Some U.K. banks have been heavy users of the approach to reduce the capital usage from their U.S. RMBS portfolios and could face a future increase of capital requirement if they have not already factored in a possibility of such a revision.
Whilst it is difficult to estimate the total volumes of transactions completed we believe that some individual firms may have completed up to $30 billion of such business to date, analysts said.