Basel ii and Securitization
Study the
Basel ii text about securitization
The Basel ii Accord and the Securitization Challenges in an
easy to read
format
Course Title
Basel ii and the new Securitization Framework
Objectives:
This course has been
designed to
provide with the
knowledge
and
skills needed to understand
the
structured finance industry and the
traditional and synthetic securitizations after the Basel
ii Accord
Target Audience:
This course is intended
for senior managers and professionals involved in
securitization - from strategy and decision making to
capital allocation
This course is
highly recommended for management consultants.
Duration:
Two days (09:00 - 17:00).
It can be tailored to specific needs.
Course Synopsis
-
Introduction - what is
securitization
-
Structured Finance and
Securitization
-
Structured Credit Products and Repackaged Securities
-
Mechanics of Securitization
Use of Special Purpose
Entities (SPE)
Traditional versus Synthetic Securitization
Collateralized Debt Obligations
Mortgage-Backed Securities
Asset-Backed Securities
Public Sector Securitizations
Corporate Securitizations
Arbitrage opportunities
Securitization before Basel i
The opportunities after the implementation of the Basel i
Accord
Securitization after Basel ii
Scope and definitions of
transactions covered under the Securitization framework
Capital allocation
challenges
Securitization in Europe
after Basel ii and the Capital Requirements Directive
Securitization in the USA
Securitization and the Offshore Financial Centers
Securitization and the world
Challenges and
opportunities
What is next
The presentation can be customized
to meet specific needs.
Stress Testing, Securitization and Highly Leveraged
Counterparties
After the Crisis
The stress testing programmes should explicitly cover
complex and bespoke products such as securitized
exposures.
According to the Bank of International Settlements, stress
tests for securitized assets should consider the
underlying assets, their exposure to
systematic market factors,
relevant contractual arrangements and embedded triggers,
and the
impact of leverage,
particularly as it relates to the subordination level in
the issue structure.
Banks have mistakenly assessed the risk of some products (eg
CDOs of ABS)
by relying on external credit ratings
or historically observed credit spreads related to
(seemingly) similar products like corporate bonds with the
same external rating. Such approaches can not capture
relevant risk characteristics of complex, structured
products under severely stressed conditions.
A bank, therefore,
should include in its stress tests
all relevant information related to the underlying asset
pools, their dependence on market conditions, complicated
contractual arrangements as well as effects related to the
subordination level of the specific tranches.
The stress testing programme
should cover pipeline and warehousing risks.
A bank should include such exposures in its stress tests
regardless of their probability of being securitized.
Stress testing is particularly important in the management
of warehouse and pipeline risk.
Many of the risks associated with pipeline and warehoused
exposures emerge when a bank is unable to access the
securitization market due to either bank specific or
market stresses.
A bank should therefore include such exposures in its
regular stress tests regardless of the probability of the
pipeline exposures being securitized.
A bank should enhance its stress testing methodologies to
capture the effect of reputational risk. The bank should
integrate risks arising from off-balance sheet vehicles
and other related entities in its stress testing
programme.
To mitigate reputational spill-over effects and maintain
market confidence, a bank should develop methodologies to
measure the effect of reputational risk on other risk
types, with a particular focus on credit, liquidity and
market risks. For instance, a bank should include
noncontractual off-balance sheet exposures in its stress
tests to determine the effect on its credit, liquidity and
market risk profiles.
A bank should carefully assess the risks associated with
commitments to off-balance sheet vehicles
related to structured credit securities and the
possibility that assets will need to be taken on balance
sheet for reputational reasons.
Therefore, in its stress testing programme, a bank should
include scenarios assessing the size and soundness of such
vehicles relative to its own financial, liquidity and
regulatory capital positions. This analysis should include
structural, solvency, liquidity and other risk issues,
including the effects of covenants and triggers.
A bank should enhance its stress testing approaches for
highly leveraged counterparties
in considering its vulnerability to specific asset
categories or market movements and in assessing potential
wrong-way risk related to risk mitigating techniques.
A bank may have large gross exposures to leveraged
counterparties including hedge funds, financial
guarantors, investment banks and derivatives
counterparties that may be particularly exposed to
specific asset types and market movements.
Under normal conditions, these exposures are typically
completely secured by posted collateral and
continuous re-margining agreements yielding zero or very
small net exposures.
In case of severe market shocks, however, these exposures
may increase abruptly and potential crosscorrelation of
the creditworthiness of such counterparties with the risks
of assets being
hedged may emerge (ie wrong-way risk).
A bank should enhance its stress testing approaches
related to these counterparties in order to capture
adequately such correlated
tail risks.
SPEs, QSPEs, VIEs and
Sarbanes Oxley Audits After the Market Crisis
According to the Staff Audit Practice Alert No 3 from the
Public Company Accounting Oversight Board, auditors of
public firms that have to comply with the Sarbanes Oxley
Act of 2002 should give specific consideration to the new
and elevated risks after the current market crisis, and
should adjust their audit procedures.
One of the areas of concern:
Off-balance-sheet arrangements and Special Purpose
Entities (again), especially the entities known as
Qualifying Special Purpose Entity (QSPEs) and Variable
Interest Entities (VIEs).
Qualifying Special Purpose Entity (QSPE)
According to the Statement of Financial Accounting
Standards No. 140 from the Financial Accounting Standards
Board, a QSPE is a legal vehicle (like a trust) that:
- It is distinct from the transferor
- Performs significantly limited activities (so banks,
insurance firms, pension plans and investment firms are
not sufficiently limited and can not become qualifying
SPEs).
- May hold only financial assets transferred to it that
are passive (the holder in making decisions only about
servicing). Examples are passive derivative financial
instruments, guarantees or rights to collateral.
Variable Interest Entities (VIE)
A VIE is often a holding company, created by another legal
entity to hold assets or debt, to carry out operations or
handle corporations, partnerships, trusts and limited
liability companies. A VIE usually does not have the
capital to support itself, so by design it is supported by
another entity. The "primary beneficiary" (that has a
controlling financial interest in the variable interest
entity) consolidates the VIE (assets, liabilities, and
profit).
There are several types of "variable interest" like loans,
leases, call options, equity investments, written put
options, forward contracts, derivatives, guarantees,
credit enhancements etc.
According to the FASB Staff Position (FSP) FAS 140-4 and
FIN 46(R)-8, public companies must disclose more about
transfers of financial assets to QSPEs and VIEs.
Primary beneficiaries, servicers, holders of significant
variable interests, transferors and sponsors are primarily
affected.
According to the Public Company Accounting Oversight
Board, the tough economic environment after the current
market crisis led public companies to provide guarantees
and financial support to QSPEs and VIEs. They have a
"variable interest" or have increased their exposure to
the above described entities, and perhaps they gave become
a "primary beneficiary".
Their investors have a need to know. Their auditors have
the obligation to ask the proper questions. The
disclosures about transfers of financial assets in VIEs
and QSPEs are meaningful and necessary.
Certified Basel ii Professional (CBiiPro)
Basel ii Distance learning and online certification program
The
Cost:
US$ 297
What
is included in this price:
A. The official presentations we use in our instructor-led classes
B. Up to 3 Online Exams
There is only one exam you need to pass, in order to become a
Certified Basel ii Professional (CBiiPro).
If you fail, you must study again the official presentations we
have sent you (paragraph A above), but you do not need to spend
money to try again. Up to 3 exams are included in the price.
C. Personalized Membership Certificate printed in full color.
Processing, printing, packing and posting to your office or home.
D. The additional Capital Requirements Directive (CRD) official
presentations we use in our Basel ii (instructor-led) classes in
the countries of the European Union (395 slides).
To
learn more:
www.basel-ii-association.com/Distance_Learning_Online_Certification.htm
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