Synthetic Securitisation

Synthetic securitisation has the potential to decrease systematic risk in the banking sector, release regulatory capital which can be used to support new lending, reduce the credit risk exposure of banks, lower the leverage of banks and thereby improve their financial position. Synthetic securitisation not only helps reduce systemic risk and improve banks' financial positions but also offers the potential to actively manage credit risk, free up regulatory capital to support new lending, and enhance return on capital.

Synthetic securitisation also has the economic advantage of weakening the link between banks deleveraging needs and credit tightening. Access to securitisation can therefore have an impact on the availability and cost of credit for a wide range of economic actors including large corporates and small and medium sized enterprises.

In the presentation Aisling and John will cover the following aspects of synthetic securitisation:

Introduction Traditional Securitisation Versus Synthetic - The Key Differences Mechanics of Synthetic Securitisation Instruments: • Credit Default Swaps (CDS)

• Credit-Linked Notes (CLN) Structure:

• Tranches: Senior, mezzanine, and equity tranches (risk/return profiles).

• Amortisation profiles: Pro-Rata and Sequential

• Special Purpose Vehicles (SPVs).

• Collateral: Types (e.g., government bonds) and their purpose. Perspectives and Motivations of the Key Parties Involved Originators: Banks transferring risk. Investors: Hedge funds, institutional investors taking on tranched risk. SPVs: Legal and operational structure.

Regulatory and Accounting Considerations Capital Requirements:

• Basel III/IV: Impact of STS (Simple, Transparent, Standardised) criteria for favorable capital treatment.

• CRR (EU Capital Requirements Regulation): Rules for significant risk transfer (SRT). Accounting Standards:

• IFRS 9 vs. US GAAP treatment of derivatives and derecognition. •Risks and Challenges

•Case Studies

•Recent Trends and Innovations