EBA publishes final Guidelines on the methodology to determine the weighted average maturity of contractual payments due under the tranche of a securitisation transaction

04 May 2020

The European Banking Authority (EBA) publishes today its final Guidelines on the determination of the weighted average maturity (WAM) of the contractual payments due under the tranche of a securitisation transaction, as laid down in the Capital Requirements Regulation (CRR). These Guidelines  aim at ensuring that the methodology applicable for the determination of the WAM for regulatory purposes is sufficiently transparent and harmonised in order to increase consistency and comparability in the own funds held by institutions.

The maturity of the tranche is an additional parameter introduced by the revised Securitisation Regulation that is needed by institutions using the internal or the external rating based approach (SEC-IRBA, SEC-ERBA) for the calculation of the risk-weighted exposure amounts of their securitisation positions. These Guidelines will help institutions using SEC-IRBA or the SEC-ERBA and opting for the use of the weighted average maturity approach (WAM) instead of the final legal maturity approach when calculating their capital requirements.

Infinalising the Guidelines, the EBA considered that the methodology applicable for the determination of the WAM for regulatory purposes should be sufficiently harmonised, to allow even less sophisticated institutions to use it, conservative to maintain a sufficient level of prudence, and simple to facilitate the supervision by competent authorities.

The main areas covered by the guidelines 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 due under the tranche both for traditional and synthetic securitisations;
  • Implementation and use of the WAM model.

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. This 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.

 

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Franca Rosa Congiu

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