EBA · 2024_7193 Rejected question

Treatment of feature of tranching for mortgage backed securities

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
Article 325N
Topic
Market risk
Submitted by
Other
Submitted
2024-09-09
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Question

Under the US NPR,  the Fed has indicated that because the credit risk is to the agency and not the pool, the tranching doesn't count for CSR purposes, and thus the proper risk class to calculate is CSR_NS (not CSR_SNC). Banks in the US subject to FRTB have been following this convention as part of the Fed's Hypothetical Portfolio Exercise. Does the EU expect to follow this interpretation as well?

Background

The background is when you have institutions that are subject to multi-jurisdiction rules and given that the mortgage market is predominantly in the US, having banking players following two different regulatory frameworks would seem misaligned.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2024_7193

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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