Strengthen the capital standards for securitization exposures held by banks.

Address various shortcomings in the existing securitization framework that were highlighted by the financial crisis such as:

A stigma attached to securitization as an asset class and an erosion in investor' confidence resulting from losses during the financial crisis.

Insufficient information on credit risks underlying securitization to be able to perform a reasonable assessment.

Bank exposures would no longer be risk-weighted by reference to the bank's external credit rating or that of its sovereign of incorporation. Instead, bank exposures would be based on two risk drivers:

Corporate exposures would no longer be risk-weighted by reference to the borrowing firm's external credit rating. Instead corporate exposures would be based on the firm's revenue and leverage.

Risk sensitivity and comparability with the Internal Ratings-Based approach would be increased by introducing a specific treatment for specialised lending.

Retail category would be enhanced by tightening the criteria to qualify for a preferential risk weight, and by introducing an alternative treatment for exposures that do not meet the criteria.

Residential real estate would no longer receive a 35% risk weight. Instead, risk weights would be based on two commonly used loan underwriting ratios:

For commercial real estate, the proposal considers either treating exposures as unsecured with national discretion for a preferential risk weight under certain conditions, or determining the risk weight based on the loan-to-value ratio.

The framework for credit risk mitigation would be amended by reducing the number of approaches, recalibrating supervisory haircuts and updating the corporate guarantor eligibility criteria.

Nature of the assets. The assets underlying the securitization should be credit claims or receivables that have a homogeneous asset type, jurisdiction, legal system and currency.

Asset performance history. Delinquency and default data, as well as other verifiable loss performance data, should be available for credit claims and receivables with substantially similar risk characteristics to those being securitized. The data should be available for a time period long enough to permit investors to perform a meaningful evaluation.

Payment status. Credit claims or receivable being transferred to the securitization may not include obligations:

Consistency of underwriting. The originator should demonstrate to investors that any credit claims or receivables being transferred to the securitization have been originated in the ordinary course of the originator's business to uniform and non-deteriorating underwriting standards.

Asset selection and transfer. Credit claims or receivables transferred to a securitization may not be actively selected, actively managed or otherwise cherry-picked on a discretionary basis, and should be either:

Initial and ongoing data. Prior to the pricing of a securitization, potential investors should have access to summary stratification data on the relevant risk characteristics of the underlying pool.

Redemption cash flows. There should not be reliance on the sale or refinancing of the underlying credit claims or receivables to repay the liabilities, unless the underlying pool of credit claims or receivables:

Currency and interest rate asset and liability mismatches. Interest rate and foreign currency risks should be appropriately mitigated and any hedging transactions documented in accordance with industry-standard master agreements.

Payment priorities and observability. The priorities of payments for all liabilities in all circumstances should be clearly defined at the time of securitization and appropriate legal comfort regarding their enforceability should be provided.

Voting and enforcement rights. All voting and enforcement rights related to the credit claims or receivables should be transferred to the securitization, and investors' rights in the securitization (including the rights of senior noteholders versus junior noteholders) should be clearly defined under all circumstances.

Documentation disclosure and legal review. Investors should be provided with sufficient initial offering documentation within a reasonably sufficient period of time prior to issuance. The documentation should provide the investor with full disclosure of the legal and commercial information and comprehensive risk factors needed to make informed investment decisions.

Alignment of interests. The originator or sponsor of the credit claims or receivables should retain a material net economic exposure and demonstrate a financial incentive in the performance of these assets following their securitization.

Fiduciary and contractual responsibilities. Servicers should be able to demonstrate expertise in the servicing of underlying credit claims or receivables, supported by a management team with extensive industry experience. The servicer should at all times act in accordance with reasonable and prudent standards. Policies, procedures and risk management controls should be well-documented and adhere to good market practices and relevant regulatory regimes. There should be strong systems and reporting capabilities in place.

Transparency to investors. The transaction documents should clearly define the contractual obligations, duties and responsibilities of all key parties to the securitization. Provisions should be documented for the replacement of services, bank account providers, derivatives counterparties and liquidity providers in the event of the deterioration of the creditworthiness (such as failure, non-performance or insolvency) of any counterparty to the securitization.

Generic criteria relating to the underlying asset pool (asset risk).

Transparency around the securitization structure (structural risk).

Governance of key parties to the securitization process (fiduciary and servicer risk).