STS Criterion 6. No resecuritisation

Description

No resecuritisation

Content

The underlying exposures should not include any securitisation position.

Rationale

See overarching rationale for consistency with traditional qualifying framework.

The definition of balance sheet synthetic securitisations for STS purposes should exclude resecuritisations. In the past, re-securitisations have been structured into highly leveraged structures where lower credit quality notes could be re-packaged and credit enhanced, resulting in transactions where small changes in the credit performance of the underlying assets severely impacted the credit quality of the re-securitisation tranches. The modelling of the credit risk arising in these bonds proved very difficult, due to high correlations arising in the resulting structures.

Synthetic re-securitisations were often structured with arbitrage purposes, and did not serve the credit risk transfer as a primary objective. In addition, unlike synthetic securitisations not structured for arbitrage purposes and not using securitisation positions as underlying exposures, synthetic re-securitisations performed materially worse than traditional securitisation that were structured largely in line with the STS criteria for traditional securitisations.