AWG monitors, and assess the effect of, capital requirements on aircraft financing. It follows a data-driven approach centered on the analysis of loss given default in aircraft backed transactions.
That work extends to assessment of Basel III/IV, produced by the Basel Committee on Banking Supervision (BCBS).
BCBS recommendations aim to ‘reduce excessive viability in risk-weighted assets’. A main feature of Basel III/IV is to remove the use of advanced internal rating based (AIRB) approached for certain capital exposures, given banks modelling practices and freedom in estimating risk components.
AWG believes that Basel III/IV will fundamentally and adversely change the regulatory framework applicable to capital requirements for credit risk, and, in our view, lack justification and require major modification.
AWG continues this work by collecting, analyzing, and presenting data on LGDs for aircraft backed loans, and interacting with the BCBS.
AWG has submitted the following historic positions on Basel III/IV:
- In March 2016 a comment letter on the second consultative document on standards/revisions to the standardized approach for credit risk.
- In June 2016 a position on the consultation on reducing variation in credit risk weighted assets, further to a prior submission on March 2016, on a consultation to the revision to the standard approach for credit risk.
- In October 2016, AWG undertook a ‘substantiating data’ study, by Professor Vadim Linetsky, AWG external advisor. This study on Regulatory Capital Treatment of Aircraft Backed Loans, includes the results of an AWG Basel data exercise conducted by AWG and several non-AWG members, reflecting low actual LGDs from capital market and export credit transactions.
- In December 2016, AWG released a document for the Basel committee on the unique features and data supporting low LGDs for aircraft-backed loans.
A comprehensive list of all AWG Basel III/IV submissions can be found here.