6.The Standards defines a securitisation as a contractual structure under which the cash flow from an underlying pool of exposures is used to service claims with at least two different stratified risk positions or tranches reflecting different degrees of credit risk. The creation of distinct tranches is the key feature of securitisation; similar structures that merely “pass through” the cash flows to the claims without modification are not considered securitisations.

7.For securitisation exposures, payments to the investors depend upon the performance of the specified underlying exposures, as opposed to being derived from an obligation of the entity originating those exposures. The stratified/tranched structures that characterize securitisations differ from ordinary senior/subordinated debt instruments in that junior securitisation tranches can absorb losses without interrupting contractual payments to more senior tranches, whereas subordination in a senior/subordinated debt structure is a matter of priority of rights to the proceeds of a liquidation.

8.In some cases, transactions that have some of the features of securitisations should not be treated as such for capital purposes. For example, transactions involving cash flows from real estate (e.g., in the form of rents) may be considered specialized lending exposures. Banks should consult with Central Bank when there is uncertainty about whether a given transaction should be considered a securitisation.