The Basel Committee announced earlier this month that it was delaying final implementation of its Capital Accord by one year.
Instead of the 2005 implementation deadline, market participants will now have until year-end 2006. The new schedule outlines a revised timetable where the committee expects the completion of the third quarter quantative impact survey by the end of this year. It expects to issue its second consultative paper by the spring 2003 and, by fourth-quarter 2003, expects the new accord to be finished.
According to the Committee, this three-year gap from finalization to implementation should prove ample time for banks and supervisors to adapt and develop necessary systems in order to properly implement the new regulations. "This may well be the best case scenario in our opinion, noting that several countries have only just recently implemented the 1988 Basle Accord," reported Deutsche Bank Securities in recent commentary.
The changes make little new reference to the treatment of securitization transactions, but the Committee has acknowledged that significant progress has been made through technical discussions in regards to securitization.
Agreements have been reached regarding the capital requirements for small and medium sized corporate exposures (SMEs), which can affect issuance consideration for originators of this asset class, said Deutsche. "The overriding goal of the Committee remains to make the new Accord capital neutral,' that is, neither significantly decreasing nor increasing the aggregate level of regulatory capital in the banking system."
Specifically, under the internal ratings-based (IRB) approach, exposures to SMEs now attract a lower capital requirement that may be as much as 20% less than the requirement for larger corporate exposures. Under this approach, non-mortgage retail credit exposures will be classified under qualifying revolving exposure such as credit cards or as other retail like non-revolving, non-mortgage consumer loans.
For banks not using the IRB approach, the risk weighting for residential mortgages will be reduced from 50% to 40% and non-mortgage retail lending will be reduced from 100% to 75%, Deutsche summarized.
According to the report, these new guidelines will minimally affect bank investors because their risk capital charges in ABS/MBS is ratings based. "Delaying the accord implementation by another year may provide incremental motivation for issuers seeking regulatory capital relief through synthetic securitizations," Deutsche researchers noted.