The Australian securitisation market has developed rapidly in recent years into one of the most active outside the US. Securitisation techniques provide local institutions with additional flexibility in managing the credit, liquidity and other risks involved in originating and funding loans. Depending on the particular structures utilised, these risks can either be retained (in part or in whole) by an originating institution or passed on to investors and others involved in the schemes. This paper overviews the Australian securitisation market largely from the perspective of lending institutions, in particular prudentially regulated deposit-taking institutions. The paper outlines: the rationale and mechanics of the securitisation process; the main features of the market in Australia; and the prudential requirements that are applied to regulated institutions? securitisation activities. Prudential supervision in Australia has aimed to facilitate the development of the securitisation market, recognising the potential benefits for financial institutions, whilst seeking to ensure that the associated risks are adequately captured by regulated institutions? risk management systems. On the regulatory front, the emphasis has been on ensuring that minimum capital adequacy guidelines provide appropriate coverage where risks are retained rather than shed by regulated institutions. An important focus of the capital rules has been to ensure appropriate treatment of 'first-loss? protection facilities, whereby regulated institutions can take on disproportionately large shares of the credit risk associated with securitisation schemes, and potentially large 'moral hazard-related? risks.
Securitisation; Prudential Regulation; APRA; Australia
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