Title[ Part 3: The Second Pillar - Supervisory Review Process
Section[ E. Call provisions
796. Supervisors expect a bank not to make use of clauses that entitles it to call the securitisation transaction or the coverage of credit protection prematurely if this would increase the bank’s exposure to losses or deterioration in the credit quality of the underlying exposures.
797. Besides the general principle stated above, supervisors expect banks to only execute clean-up calls for economic business purposes, such as when the cost of servicing the outstanding credit exposures exceeds the benefits of servicing the underlying credit exposures.
798. Subject to national discretion, supervisory authorities may require a review prior to the bank exercising a call which can be expected to include consideration of:
w The rationale for the bank’s decision to exercise the call; and
w The impact of the exercise of the call on the bank’s regulatory capital ratio.
799. The supervisory authority may also require the bank to enter into a follow-up transaction, if necessary, depending on the bank’s overall risk profile, and existing market conditions.
800. Date related calls should be set at a date no earlier than the duration or the weighted average life of the underlying securitisation exposures. Accordingly, supervisory authorities may require a minimum period to elapse before the first possible call date can be set, given, for instance, the existence of up-front sunk costs of a capital market securitisation transaction.
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