Canary Wharf

Counterintuitive results

Category: ABS Capital Relief Trades CDO

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EBA consultation incentivises unfunded SRT format

The EBA’s consultation on the determination of the weighted average maturity of a securitisation tranche (SCI 2 August) is seen as a positive step for synthetic securitisations, since it takes into account the conditional payments of the underlying assets. However, by not recognising the effect of prepayments and pool amortisations, the proposal creates counterintuitive results that incentivise banks to opt for unfunded significant risk transfer deals over funded ones - even though regulators have long disclosed their preference for the latter.

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