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Proposed changes to the Basel Committee on Banking Supervision's securitization capital framework threaten to undermine the committee's own stated aims to make charges more risk sensitive, and would increase the amount of capital European banks have to hold against their securitization positions by about EUR42 billion ($54.7 billion), according to Bank of America-Merrill Lynch.
The special report by analysts examined the committee's plans, unveiled last December, to overhaul its securitization framework and the way it calculates charges for asset-backed and mortgage-backed securities (SI, 12/18). The amendments aim to reduce the risk of "cliff effects" in the calculations by making them more consistent across different accounting approaches; to make the calculations "more risk-sensitive and prudent" and to curb banks' and other financial institutions' reliance on external ratings.
BAML's study noted that the overall capital needed to be held against securitizations could increase "several folds". At the same time, analysts at the bank in London criticized the Basel Committee's stated aim...