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Fitch Responds To Basel 2 Working Paper On Securitization.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 23, 2002

The Basel Committee's 'Working Paper on the Treatment of Asset Securitisations' should improve the relationship between economic and regulatory capital by more accurately measuring credit risk, according to a new report issued today by Fitch Ratings.

Fitch welcomes the Basel Committee's proposals on securitisation and has commented on how these proposals correspond with current capital market practices. Specifically, the piece addresses scaling factors for asset securitisations and the use of supervisory formula for retained tranches by banks that originate securitisations or investing banks that purchase securitisation exposures, revolving securitisations, liquidity facilities, and synthetic securitisations.

For one, the Basel Committee is proposing a series of scaling factors, for asset-backed securities (ABS) relative to corporates, to be applied to securitisation exposures according to external credit ratings. As a result of the scaling factors, the risk-weights of such ABS exposures are equal to or greater than equivalently rated corporates.

'Fitch Ratings believes that the Basel Committee's use of scaling factors should be implemented in a flexible manner,' said Ian Linnell, Managing Director, Fitch Ratings. 'Fitch's empirical data show that the probability of default has historically been lower for asset securitisations than for corporates of all rating categories.'

The new Fitch report also discusses the proposed supervisory formula for the treatment of retained tranches by originating banks or purchased asset-backed securitizations by investing banks that have no external ratings and for which no inferred ratings can be derived.

The formula includes a beta factor, or premium, used to create a high confidence level, which can result in a higher capital charge than if the asset concerned had simply continued to be held on balance sheet. While Fitch believes that such an approach can be justified to capture non-credit risks, such as the liquidity exposure of banks, these risks vary significantly by institution, so the use of beta factors and a 'one size fits all' approach needs to be carefully considered.

The new Fitch report 'Basel 2: Fitch's Response to the Working Paper on Securitisation' can be found on the Fitch Ratings web site at '' or by contacting Market Services at 1-800-853-4824.
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Publication:Business Wire
Date:Jul 23, 2002
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