...Performance Supports STS Classification: Fitch Ratings' loss expectations for EU structured finance (SF) tranches support the preferential capital treatment of Simple, Transparent and Standardised (STS) securitisations. The expected loss rate for tranches assumed to satisfy the STS standards is 1.0%, compared to 4.3% for non-STS tranches. This difference substantiates the use of the STS classification in determining capital charges, as proposed by the European Commission (EC) and Basel Committee. Charges Significantly Higher Than Losses: The proposed capital charge is 4.5 times higher than the losses expected on STS-compliant tranches. The multiple of expected loss to capital charge is actually lower for non-STS tranches, at 3.4 times. This report provides examples of capital charge calculations, based on the External Ratings-Based Approach (ERBA). Senior Investors Most Affected: Compared to the existing capital treatment, higher rated tranches (irrespective of STS classification) will...
