EBA launches consultation on the methodology to determine the weighted average maturity of contractual payments due under the tranche of a securitisation transaction

The European Banking Authority (EBA) launched today a public consultation on draft Guidelines (GLs) on the determination of the weighted average maturity (WAM) of the contractual payments due under the tranche, as per the Capital Requirements Regulation (CRR) Article 257(1) (a). These draft GLs  aim at ensuring that the methodology applicable for the determination of the WAM for regulatory purposes is sufficiently harmonised in order to increase consistency and comparability in the own funds held by institutions.

This methodology to determine the WAM of contractual payments due under the tranche of a securitisation transaction should be clear to avoid arbitrage and to allow less sophisticated institutions to use the External Ratings Based Approach for calculating risk weighted exposure amounts of a securitisation position (SEC-ERBA). In addition, the methodology should be conservative to maintain a sufficient level of prudence and simple to facilitate the supervision of competent authorities.

The revised CRR framework for securitisation introduced the maturity of the tranche as an additional risk factor to take into account when calculating the capital requirement of securitisation exposures. In particular, two alternative approaches could be applied when determining the maturity of a tranche: the WAM of the contractual payments due under the tranche or the final legal maturity of the tranche.

The purpose of these draft Guidelines is to provide the guiding principles for institutions opting for the WAM approach instead of the final legal maturity approach. This is done with the purpose of calculating the risk weighted exposure amounts of a securitisation position via the methods that use the maturity of the tranche as a risk factor, namely: (1) the Internal Ratings Based Approach for calculating risk weighted exposure amounts of a securitisation position (SEC-IRBA) and (2) SEC-ERBA. The main areas covered by the draft GLs are the following:

• Meaning of contractual payments due under the tranche;
• Data and information requirements;
• Methodologies for determining the contractual payments of the securitised exposures, and of the tranches, both for traditional and synthetic securitisations;
• Implementation and use of the WAM model.

Consultation process

Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 31 October 2019. A public hearing will take place at the EBA premises on 3 September 2019 from 15:00 to 16:30 CET.

Legal basis

The GLs have been developed according to Article 257(4) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2401/2017. The aforementioned article mandated the EBA to monitor the range of practices on the determination of tranche maturity with particular regard to the application of the WAM and, in addition, in accordance with Article 16 of Regulation (EU) No 1093/2010, to issue these guidelines by 31 December 2019.