Minimum Capital Requirements for Credit Risk

Underlying instruments in the pool being securitized may include but are not restricted to the following: loans, commitments, asset-backed and mortgage- backed securities, corporate bonds, equity securities, and private equity investments. The underlying pool may include one or more exposures. Definitions and General Terminology 18.7 For risk-based capital purposes, a bank is considered to be an originator with regard to a certain securitization if it meets either of the following conditions: (1) The bank originates directly or indirectly underlying exposures included in the securitization; or (2) The bank serves as a sponsor of an asset-backed commercial paper (ABCP) conduit or similar programme that acquires exposures from third-party entities. In the context of such programmes, a bank would generally be considered a sponsor and, in turn, an originator if it, in fact or in substance, manages or advises the programme, places securities into the market, or provides liquidity and/or credit enhancements. 18.8 An ABCP programme predominantly issues commercial paper to third-party investors with an original maturity of one year or less and is backed by assets or other exposures held in a bankruptcy-remote, special purpose entity. 18.9 A clean-up call is an option that permits the securitization exposures (e.g. asset- backed securities) to be called before all of the underlying exposures or securitization exposures have been repaid. In the case of traditional securitizations, this is generally accomplished by repurchasing the remaining securitization exposures once the pool balance or outstanding securities have fallen below some specified level. In the case of a synthetic transaction, the clean- up call may take the form of a clause that extinguishes the credit protection. 18.10 A credit enhancement is a contractual arrangement in which the bank or other entity retains or assumes a securitization exposure and, in substance, provide some degree of added protection to other parties to the transaction. 18.11 A credit-enhancing interest-only strip (I/O) is an on-balance sheet asset that (1) Represents a valuation of cash flows related to future margin income, and (2) Is subordinated. 18.12 An early amortization provision is a mechanism that, once triggered, accelerates the reduction of the investor’s interest in underlying exposures of a securitization of revolving credit facilities and allows investors to be paid out prior to the originally stated maturity of the securities issued. A securitization of revolving credit facilities is a securitization in which one or more underlying exposures represent, directly or indirectly, current or future draws on a revolving credit facility. Examples of revolving credit facilities include but are not limited to credit card exposures, home equity lines of credit, commercial lines of credit, and other lines of credit. 18.13 Excess spread (or future margin income) is defined as gross finance charge collections and other income received by the trust or special purpose entity (SPE, as defined below) minus certificate interest, servicing fees, charge-offs, and other senior trust or SPE expenses. 18.14 Implicit support arises when a bank provides support to a securitization in excess of its predetermined contractual obligation.