The U.K. government announced further details regarding the implementation of its Asset Protection Scheme.
ABS assets such as cash RMBS, CMBS, CLOs and CDOs are specifically listed by the U.K. Treasury to be eligible under this scheme.
The scheme provides government protection against future losses of the riskiest assets held by (in first instance) large U.K. banks. This includes incorporated authorized deposit takers, including U.K. subsidiaries from foreign institutions with more than £25 billion ($35.4 billion) of eligible assets.
According to the U.K. Treasury, banks will receive protection for a proportion of their balance sheets so that the healthier part of their commercial business is able to continue to lend to creditworthy businesses and households.
Protection is offered to the extent that credit losses exceed a first loss amount of 10% of the protected exposure, which still has to be borne by the institution. The protection provided by the government will cover the remaining 90% of any credit losses that exceed this "first loss".
The first loss piece ensures that participating institutions fulfill an appropriate servicing and portfolio management process.
To participate in the scheme and receive protection, banks need to pay a fee and are legally required by the U.K. government to provide lending to households and businesses.
Participating banks will also have to offer a sustainable long-term remuneration policy as well as high transparency.