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Reform of the EU Securitisation Framework—Part 9: Changes to Capital Requirements

On 17 June 2025, the European Commission (the "Commission") published its proposed measures to revive the securitisation framework in the European Union ("EU"), with a view to making it simpler and more fit for purpose. This Commentary is the ninth in our "Reform of the EU Securitisation Framework" series, which addresses each of the key elements of the proposals in more detail. The other articles in this series can be found here, as they are released.

In Short

The Background: In January 2019, the EU introduced its current regulatory framework for securitisations, seeking to improve transparency, robustness and market confidence following the global financial crisis. Market participants have criticised certain aspects of the framework as being unnecessarily conservative (compared to other assets with similar risk profiles), costly or burdensome, and therefore limiting the development of a healthy securitisation market in the EU. The Commission reached similar conclusions in its 2022 review report (the "Report") on the existing framework and from the public consultation it conducted in 2024.

The Development: The Commission recently published proposed amendments to the existing securitisation framework, aiming to address participants' concerns and stimulate the EU securitisation market without increasing systemic risk. These proposals include changes to the capital requirements applicable to securitisation positions, with the aim of applying a more risk-sensitive, granular approach in place of the current fixed mechanics. The aim is to reenergise the European securitisation market by removing unjustified capital disincentives—particularly for high-quality, senior positions whose risks are demonstrably low—without relaxing regulatory discipline more generally.

Looking Ahead: The Commission's proposals are currently under review by the European Parliament and Council, each of whom can make changes to the current drafts. There is no defined timeline for this process, though it is likely to take at least 18-24 months. In connection with these proposals, the Commission is also consulting on draft amendments to various delegated regulations, including the Liquidity Coverage Ratio Delegated Regulation (for which feedback ended 15 July 2025) and the Solvency II Delegated Regulation (published for feedback on 18 July 2025).

Background

Under the current Regulation (EU) 575/2013 (the "CRR"), securitisation exposures are currently subject to conservative capital requirements due to their perceived complexity and model risk. In particular, the current framework includes several features that inflate capital requirements for banks holding securitisation positions, namely:

  • High risk-weight floors, particularly for non-STS tranches;
  • The "p-factor", an additional multiplier that amplifies calculated risk-weighted exposure amounts ("RWEAs") to reflect perceived model and structural risk;
  • A strict hierarchy of approaches (IRBA → SA → ERBA), which can be difficult to apply due to data availability or regulatory constraints; and
  • A lack of differentiation between high-quality and more complex securitisations in terms of capital treatment.

These measures were originally implemented to address risks from the opaque, leveraged and poorly understood securitisations that contributed to the 2008 financial crisis. However, the market today looks very different. Over the past decade, the EU has introduced a number of robust structural safeguards that reduce many of the risks that the post-financial crisis rules were designed to address. These include, for example: (i) the introduction of the "Simple, Transparent and Standardised" ("STS") framework; (ii) enhanced reporting obligations more generally to promote greater clarity and transparency for investors; (iii) enhanced due diligence and risk retention obligations to better align originators' incentives with those of investors; and (iv) improved supervision and coordination across Member States with respect to compliance and enforcement.

Together, these improvements have produced a much lower-risk securitisation environment in the EU. However, the capital regime under the CRR has yet to be fully recalibrated to reflect this reality, creating a disconnect between regulatory capital requirements and actual credit risk. As a result, the European securitisation market has remained underdeveloped relative to its potential. Securitisation issuance has remained modest and concentrated in a few Member States, institutional investors and banks have been disincentivised from holding even high-quality securitised assets, and the RWEA regime has created an uneven playing field compared to covered bonds and corporate loans, which often benefit from more favourable capital treatment despite similar (or even higher) risk. 

This mismatch has limited the capacity of EU financial institutions to use securitisation as a capital management tool—particularly for transferring credit risk from balance sheets in a prudentially sound manner. The Commission's proposals aim at correcting this imbalance by introducing a more risk-sensitive and proportionate RWEA framework that rewards structural robustness and transparency, better aligns capital requirements with actual credit risk, supports the EU's broader objective to deepen capital markets and facilitate bank lending and ensures the EU securitisation framework remains competitive globally—particularly in light of reforms undertaken in jurisdictions like the United Kingdom and United States.

The Proposals

1. Replacement of fixed minimum risk-weight floors with risk-sensitive floors. Article 259(1) of the CRR currently prescribes fixed minimum risk- weight floors with respect to the senior tranches of a securitisation (10% for STS securitisations and 15% for non-STS securitisations), which apply regardless of the actual risk profile of the securitised pool. 

The Commission has proposed to: (i) lower the existing minimum fixed floors for each tranche type (the "Fixed Floor") and (ii) introduce a risk-sensitive element to the floor, which can dynamically scale according to the risk profile of the underlying asset pool based on factors like credit quality (e.g., ratings or credit score distribution), asset granularity, historical performance and delinquency data and sectoral or geographical concentration (the "Dynamic Floor"). The Dynamic Floor would equal the product of:

  • The current risk-weight floors—i.e., 10% for STS tranches, or 15% for non-STS;
  • The underlying pool's risk weight— i.e., 12.5 times the capital charge for the exposure ("KIRB", if using the Securitisation Internal Ratings-Based Approach ("SEC-IRBA"); or "KA", if using the Securitisation Standardised Approach ("SEC-SA")).

As shown in the table below, different tranche types attract distinct floors, reflecting the lower perceived risk of STS and resilient positions. 

For a given tranche, the applicable floor would be the greater of the new Fixed and Dynamic Floors shown below:

Comparison table showing current floor percentages and proposed changes with fixed and dynamic floors for different tranche types including Senior STS and Senior non-STS.

2. Recalibration of the "p-factor" adjustment. Under SEC-IRBA and SEC-SA, the p-factor currently operates as a fixed multiplier that increases the capital costs for securitised exposures relative to direct exposures, in order to account for model and agency risk. The Commission has proposed to materially reduce the p-factor, particularly for: (i) senior STS exposures; (ii) senior non-STS exposures, where sufficient structural protection can be demonstrated; and (iii) senior positions retained by originators and sponsors, subject to certain eligibility criteria. 

The Commission has proposed to lower the relevant scaling factor applied to the p-factor calculation (whether, under SEC-IRBA or SEC-SA), specifically with respect to "resilient" senior STS tranches, as well as all other senior tranches where retained by an originator/sponsor (the scaling factor for other tranche types remains unchanged):

  • Resilient senior STS tranches: 0.3 (reduced from 0.5);
  • Non-resilient senior STS tranches retained by the originator/sponsor: 0.3 (reduced from 0.5) (exposures held by investors retain a scaling factor of 0.5); and
  • Senior non-STS tranches, which are retained by an originator/sponsor: 0.7 under SEC-IRBA or 0.6 under SEC-SA (reduced from 1.0) (exposures held by investors retain a scaling factor of 1.0).

Further, for SEC-IRBA calculations, the current regulations solely impose a floor on the p-factor (currently 0.3 for all tranche types), but no corresponding cap, meaning some structures may result in extremely high p-factor values. The Commission has therefore proposed to: 

  • Lower the floor to 0.2 for certain tranche types under SEC-IRBA (namely, for the new category of "resilient" exposures, as well as for any type of STS tranche retained by an originator/sponsor); and
  • Introduce a cap on all p-factors calculated under SEC-IRBA (0.5 for any type of STS tranche, and 1.0 for any type of non-STS tranche).

3. Introduction of the "resilient securitisation position" concept. The Commission has also proposed to introduce a new category of exposures referred to as "resilient securitisation positions", which must meet both qualitative and quantitative criteria, including sequential amortisation, limited exposure to high-risk obligors, robust credit enhancement mechanisms, minimum asset pool quality standards and granularity and structural subordination thresholds. Positions that meet these more stringent requirements would be eligible for preferential risk weights and a further reduced p-factor (as shown in the tables above). For more on the new "resilient securitisation" category proposed by the Commission, please see part three of this series.

4. Refined treatment of non-senior tranches. Although senior tranches are the primary beneficiaries of the Commission's proposals, the Commission also signals intent to increase risk sensitivity in the treatment of non-senior tranches, particularly those rated below investment grade. The proposed approach includes the use of attachment/detachment points to more accurately capture tranche thickness and credit subordination and the preservation of capital floors, but adjusted based on asset pool risk metrics.

Analysis of the Proposed Changes

The proposed amendments seek to address long-standing concerns regarding excessive capital requirements—particularly for senior tranches and high-quality structures—and the lack of differentiation across transaction types. Therefore, the proposed changes are likely to be welcomed by the industry and will certainly have far-reaching implications for market participants. 

As noted above, the Commission has proposed to adopt a hybrid approach to risk- weight floors: On the one hand, it would lower the fixed floors currently applicable to senior tranches; on the other, it would impose a new "dynamic floor", which could raise the relevant floor in alignment with an underlying pool's actual credit quality. Because the applicable floor will be the greater of these two alternatives, the impact to both originators and investors will go both ways.

Some deals will see improved economics for senior tranches, particularly with respect to low-risk pools that today are constrained by higher fixed floors; capital requirements for the lowest-risk assets (e.g., prime mortgages) could be reduced by as much as half, where held in a resilient, STS senior tranche. For riskier pools, the new floors may actually bite harder than those under current regulations, limiting opportunities for inexpensive senior funding. This could shift origination strategies, as originators may favour higher-quality pools where the capital benefit is clearer.

Lower capital charges for senior tranches—particularly for "resilient" or STS securitisations—will enhance capital efficiency, making securitisation a more attractive tool for credit risk transfer. Further, a revised RWEA treatment could revive demand for securitised products as part of their long-term investment portfolios, attracting investors not traditionally involved in the space and thereby increasing secondary market liquidity. This could allow investors to propose more competitive pricing and participate more in senior layers of structured finance, and allow originators to obtain more favourable financing costs under the improved RWEA regimes. However, because the floor would now be able to increase dynamically (based on the relevant risk profile of the underlying exposures), originators will need to engage in more robust internal credit analysis to justify eligibility for a lower capital floor, and may need to provide investors with increased disclosure under Article 7 of the EU Securitisation Regulation.

Similarly, the recalibration of the p-factor should directly improve the economics of senior originator/sponsor-retained tranches, especially under SEC-SA, where the current p-factor calculation can be particularly punitive. It should also help to narrow the gap between SEC-IRBA and SEC-SA, reducing distortions that penalise banks unable to use the Internal Ratings-Based Approach. That said, the reforms deliberately avoid giving relief to non-senior investor positions, which remain heavily penalised from a capital perspective. This approach signals the Commission's intent to discourage bank investment in mezzanine tranches, reflecting prudential concerns about concentrated tail risk and the systemic lessons from the financial crisis. For market participants, it means that originators and sponsors will enjoy capital relief at the senior level, but mezzanine tranches will remain reliant on non-bank investors for absorption. This may continue to constrain liquidity in the mezzanine market, but from a policy standpoint, it aligns with the goal of ensuring that banks retain only those exposures that are most stable and transparent.

While a more diversified and risk-sensitive capital costs approach is certainly welcome, it should be borne in mind that the Commission's proposal is highly complex as it provides for 16 different scenarios for the calculation of capital costs (including "resilient" securitisations). This may operate as a deterrent rather than a facilitator for market participants that intend to enter the EU securitisation market.

It is also clear that regulators will need to develop new supervisory tools and frameworks given the increased complexity required by the more granular, dynamic approach to risk weighting and the p-factor. These changes will consequently demand a greater level of coordination across national competent authorities in the EU to ensure consistent application of the revised rules across the market, as well as to prevent incentives for regulatory arbitrage or "label shopping" for more favourable RWA securitisation structures.

Looking Ahead

The Commission's proposed amendments have been submitted to the European Parliament and the Council of the EU for review and approval. Changes to the current draft amendments should be expected as part of the legislative negotiation process, though it is unclear at the present stage how extensive such changes may be. There is no defined timeline for the process, though it is expected to be at least 18-24 months before the proposals would become law. The proposed amendments also give rise to certain practical issues, which might challenge the success of the legislative proposals. 

Further, it is unclear whether the United Kingdom will seek to minimise regulatory divergence by adopting similar changes to its "on-shored" version of the EU regime. Market participants are advised to conduct a thorough legal analysis of the evolving regulatory landscape, including the interplay between EU and UK regimes, to ensure compliance and to capitalise on new investment opportunities that may arise from a harmonised or divergent approach.

Sneak preview: In part 10 of this series, we will look at the Commission's recent consultation on draft amendments to the Liquidity Coverage Ratio Delegated Regulation.

Five Key Takeaways

  1. Increased return on, and demand for, securitisation exposures. The application of lower capital costs may enhance return on securitisation exposures and, consequently, increase investors' appetite for securitisation transactions in the EU.
  2. Improved attractiveness of securitisation as a financing tool. The proposed changes will result in an EU securitisation market that is more competitive globally; they are also likely to incentivise the use of securitisation as a viable financing technique in other contexts (such as project finance, real-estate finance, acquisition finance and inventory financing).
  3. Non-senior exposures remain highly capital-intensive. Although the Commission has introduced more granularity for non-senior positions, the overall direction is clear: Mezzanine and junior positions remain highly capital-intensive, especially where they are non-STS. Investor positions in non-senior tranches do not benefit from any of the p-factor reductions granted to senior positions.
  4. Diversity vs complexity. The Commission's proposal is highly complex as it provides for a number of different scenarios for the calculation of capital costs. This may operate as a put-off factor for the revitalisation of the EU securitisation market.
  5. Increased supervisory requirements. Supervisors are likely to expect market participants to carry out a more detailed analysis (and meet more robust ongoing disclosure requirements) to ensure a fair application of the new RWA regime and prevent incentives for regulatory arbitrage.
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