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Changes In Bank Of Italys Requirements For Recognition Of Securitization Transactions

February 22, 2011

By Alberto Del Din & Norman Pepe

The Bank of Italy has recently published an amended version of the New Regulations for Prudential Supervision of Banks (the Regulations).

Most of the innovations introduced in the Title II, Chapter 2, Part 2, of the Regulations, entitled Credit Risk Mitigation Techniques and Securitization Transactions - Securitization, (the Securitization Supervisory Rules) are intended to implement in Italy the new Article 122a of the Capital Requirements Directive which requires, inter alia, that EU regulated credit institutions (i) may only invest in asset-backed securities in respect of which the originator, sponsor or original lender of the securitization will retain, on an ongoing basis, a net economic interest of not less than 5% in respect of certain specified credit risk tranches or asset exposures and (ii) comply with certain continuing due diligence duties in respect of the securitization transaction in which they have invested.

The Bank of Italy has taken this opportunity to also reform the minimum requirements for the recognition of securitization transactions for regulatory capital purposes. This Client Alert is intended to provide a preliminary analysis of such new requirements.