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Performance and regulatory effects of non-compliant loans in German synthetic mortgage-backed securities transactions

Deutsche Bundesbank Frankfurt am Main
Publication Date
  • G21
  • G28
  • Ddc:330
  • Non-Compliance
  • Risk Transfer
  • Securitization
  • Securitization
  • Asset-Backed Security
  • Kreditrisiko
  • Wertpapierhandel
  • Bankrisiko
  • Risikomanagement
  • Bankenpolitik
  • Deutschland


Over the term of a securitization transaction, the concept of non-compliance allows a securitizing bank to classify a securitized loan as materially non-compliant with certain transaction requirements. Such a loan becomes unqualified for loss allocation. Therefore, non-compliant loans can directly affect transaction performance and the extent of risk transfer achieved with the transaction. The concept of non-compliance is incorporated in many securitizations independent of the underlying assets or structure. In Germany, there are currently no specific regulations regarding this concept. However, a bank can use discretion when classifying a loan as non-compliant and could thus report non-compliant loans strategically. This hypothesis is tested and confirmed based on a unique data set.

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