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A new academic article suggests recalibrating the risk weights (RWs) for securitization exposures in the US banking capital requirements formula.

While it’s an academic paper and doesn’t represent the views of the authors’ employers, its content comes at a critical time. The EU is consulting on major changes to its securitization framework which in part seek to revise RWs for securitization exposures. US regulators are in the process of re-proposing the US version of Basel 3, which sets minimum bank capital requirements.

“The paper was a way to try and start a conversation and think through some of the issues, in the hope that this might spur some dialog between banks and regulators,” said Scott Frame, senior vice president and deputy head of research at the Bank Policy Institute. “It's very policy-relevant and we do hope people read it and tell us what they like or don't like.”

“The goal is to achieve a more risk-sensitive model,” said Chris Horn, partner at Cadwalader, Wickersham & Taft.

The proposed changes stand on their own, tailored to the US model, but they lean on the logic of a holistic and more “risk sensitive” approach set by European regulators, who have proposed adjustments to EU securitization rules to help revive that market.