AI Summary of Article 250 Implicit support
This regulation establishes that sponsor or originator institutions involved in securitisation must not offer support beyond their contractual obligations to mitigate losses for investors. A transaction will not be deemed supportive if it adheres to criteria for significant credit risk transfer, and both parties act independently in their best interests.
Moreover, failure to comply with these provisions necessitates that institutions include all underlying exposures in their risk-weighted calculations, along with required disclosures regarding the provision of support and its impact on own funds requirements.
Article 250 Implicit support
1. A sponsor institution, or an originator institution which in respect of a securitisation has made use of Article 247(1) and (2) in the calculation of risk-weighted exposure amounts or has sold instruments from its trading book to the effect that it is no longer required to hold own funds for the risks of those instruments shall not provide support, directly or indirectly, to the securitisation beyond its contractual obligations with a view to reducing potential or actual losses to investors.
2. A transaction shall not be considered as support for the purposes of paragraph 1 where the transaction has been duly taken into account in the assessment of significant credit risk transfer and both parties have executed the transaction acting in their own interest as free and independent parties (arm's length). For these purposes, the institution shall undertake a full credit review of the transaction and, at a minimum, take into account all of the following items:
(a) the repurchase price;
(b) the institution's capital and liquidity position before and after repurchase;