The Basel Committee on Banking Supervision published criteria to help investors assess the risk of asset-backed securities seven months after it set tougher capital rules on the products.
Securitizations seeking the "simple, transparent and comparable" label should pool similar assets in a way that isn't overly complex, the Basel committee and the International Organization of Securities Commissions said in a statement on Thursday. They should set out information on the assets underlying the deal, its structure and the parties involved.
The criteria, proposed in December, gave rise to industry concerns that they were "too prescriptive and granular." The final standards were adjusted "to strike the right balance in the level of detail for global criteria that can be applied to all asset types and across jurisdictions," the regulators said.
Complex securitizations helped fuel the financial crisis by making it harder for investors and supervisors to understand cashflows and where risks were hidden. The crisis also underlined the importance of strong underwriting in originating the underlying assets and of governance, as well as the importance of giving buyers the tools to carry out their own assessment of the risks, rather than relying on ratings.
The Basel committee "significantly increased" capital requirements on asset-backed securities in December from pre-crisis levels.
In the European Union, the European Central Bank and other policy makers are seeking to rebuild the market for ABS in Europe as a way to reinvigorate lending and investment in the bloc. The European Commission, the EU's executive arm, said the Basel capital rules for ABS would significantly increase requirements even for highly rated products and needed work.
