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The Great Financial Crisis (GFC) exposed significant vulnerabilities in global securitisation markets. In response, international standard-setting bodies implemented comprehensive reforms to address the weaknesses in these markets. These reforms sought to restore market integrity and resilience by reducing reliance on external credit ratings, enhancing risk sensitivity and improving transparency.

Since the introduction of these reforms, securitisation markets have followed divergent paths. While some markets have experienced strong recoveries, others remain subdued. This divergence has sparked debate about potential unintended consequences of the reforms, including concerns that overly conservative or prescriptive implementation may have constrained securitisation activity in certain jurisdictions. These challenges have prompted recent regulatory initiatives in such jurisdictions.

This paper aims to provide evidence-based analysis that could shed light on three aspects of the ongoing debate. First, it examines to what extent the post-GFC reforms have achieved their intended objectives. Second, it explores whether these reforms have led to unintended consequences. Finally, it considers whether there is a need to revisit and adjust the regulatory framework for securitisation.

JEL classification: G01, G18, G21, G22, G28, E44, P52

Keywords: securitisation, regulatory capital, post-GFC reforms, prudential regulation, significant risk transfer, risk retention

• Since the banking turmoil of 2023, the Committee has worked to strengthen supervisory effectiveness in relation to material risks that could result in financial losses, impacting the safety and soundness of financial institutions.
• This work covers the supervision of liquidity risk and interest rate risk in the banking book (IRRBB), banks’ business models, and the exercise of effective supervisory judgment.
• The Committee has facilitated information sharing on a range of supervisory practices to support supervisors toward supervising these risks in the banks that they oversee, including tailoring their requirements to align with each financial institution’s size, complexity and risk profile.

The Committee has been actively facilitating roundtable discussions and workshops to support supervisors in their day-to-day work in relation to the material risks that impact the safety and soundness of financial institutions. Areas of focus included: (i) interest rate risk and liquidity risk, along with various forms of concentration risk; (ii) the build-up and interrelated nature of various individual risks and how they can compound one another; (iii) ensuring a bank’s risk management aligns with its business model; (iv) effectiveness of senior management and board oversight; and (v) banks’ responsiveness to supervisory feedback and recommendations.

Supporting supervisory decision-making and effectiveness will contribute to global financial stability.  This can be advanced by fostering a better understanding of diverse supervisory approaches and practices worldwide, benefiting both supervisors and banks. The Committee has developed practical supervisory tools and published a working paper on supervisory effectiveness to support supervisors in their day-to-day work that supplement but do not change or replace existing Basel standards or guidelines. 

Supervision of liquidity risk

The Principles for Sound Liquidity Risk Management and Supervision provide a strong basis for the supervision of liquidity risk taking into consideration the size, complexity and risk profile of a bank.  Information sharing on supervisory approaches covered supervisory practices relating to liquidity monitoring indicators in areas such as contractual maturity mismatch, concentration of funding, monetisation of assets, intraday liquidity, funding costs, and liquidity risk in crises, as well as current supervisory practices related to banks’ contingency funding plans. 

Supervision of IRRBB

The IRRBB standards lay out the Committee’s expectations for banks’ identification, measurement, monitoring and control of IRRBB, taking into account the size, complexity and risk profile of the bank, as well as its supervision. Information sharing include the supervision of banks’ modelling assumptions, such as general considerations, the adequacy of non-behavioural and behavioural assumptions, scenario selection, the treatment of non-maturity deposits, and the supervision of embedded gains and losses.

Business model analysis

The Committee’s work has focused on sharing information on existing supervisory approaches to a variety of banks’ business models ranging from universal banks to those with more concentrated activities. It also considers topics such as entity-level versus activity-based supervision.

Effective supervisory judgment

Effective supervisory judgment depends on supervisors’ ability and willingness to actively identify weaknesses in banks and to take and enforce prompt supervisory actions.  The Committee’s work has focused on sharing information on how supervisors approach the application of supervisory judgment in day-to-day supervision, as well as broader observations on effectiveness related to the organisation of the broader supervisory authority. Additional focus areas for detailed information sharing include the powers and tools that supervisors have at their disposal, the role of supervisory risk appetite, and the allocation of supervisory resources based on the size and complexity of a bank. The Committee published a working paper on Lessons on supervisory effectiveness – a literature review in July that provides insights from academic and policy work on supervisory effectiveness.