Will Basel II Spur More MBS Deals?

Reducing capital requirements under Basel II may spur more securitization of mortgage and credit card loans among banks, according to a new report from Fitch Ratings.The report, "Basel II: The 'Bottom-line' Impact on Securitization Markets," explores the quantitative effect of Basel II capital charges on various structured transactions. Fitch concluded that banks could face lower capital charges by investing in rated securitization deals rather than by directly holding a comparable pool of unsecuritized assets, especially for credit card asset-backed securities, commercial mortgage-backed securities, and residential MBS. The rating agency also said Basel II could influence the structure of securitizations. "Banks will face strong pressures under Basel II to minimize their exposure to sub-investment-grade tranches, given the significant amount of regulatory capital they will have to hold against these positions," said Krishnan Ramadurai, a Fitch senior director for financial institutions.