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Key International Standard Setter Provides Relief for Non-Performing Loans

The Basel Committee on Banking Supervision amended its capital requirements for non-performing loan securitizations through a WOCCU-advocated technical amendment: Capital treatment of securitizations of non-performing loans. The rule closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitizations.

The final rule permits banks to apply the external ratings-based approach to non-performing loans' securitization exposures, without the 100% risk weight floor. In addition, the rule refines the definition of discount incurred by the originating bank that factors in the capital requirements.

WOCCU commented on this proposal in June by advocating for relief in connection with the securitizations of non-performing loans. The rule should make it easier and cheaper for banks and credit unions to securitize non-performing loans, which will be important as institutional stress increases due to the economic impacts of COVID-19. 

A copy of the amendment can be viewed here.

This post originally appeared on World Council's Advocate blog.