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FRM Part II · FRM Exam Part II · An Introduction to Securitisation

Which feature distinguishes a simple, transparent and comparable (STC) securitisation under the Basel framework from other securitisations in capital treatment?

STC securitisations that meet the criteria on simplicity, transparency and comparability receive lower risk weights than comparable non-STC deals. The benefit is a reduced capital charge, not an exemption. Other requirements, such as significant risk transfer for originators, still apply.

  1. ASTC securitisations qualify for lower risk weights than non-STC securitisations, subject to criteria on simplicity, transparency and comparabilityCorrect
  2. BSTC securitisations are exempt from all capital requirements
  3. CSTC status applies only to resecuritisations
  4. DSTC status allows originators to ignore the significant risk transfer test

Explanation

Basel recognises STC criteria to give somewhat more favourable risk weights to securitisations that are less complex and easier to analyse. This is not an exemption, does not cover resecuritisations, which get harsher treatment, and does not remove other requirements such as significant risk transfer.

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