Understanding Spain's Securitisation Process: Types, Characteristics, and Financial Reporting

2. The securitisation process in SpainContents 1. Types of securitisation regulated in Spain 2. Characteristics of the FVCs created to securitised assets in Spain 3. Reform of the accounting standards for credit institutions and its effect on securitisation 4. Recording of securitisation transactions in the Financial Accounts of the Spanish Economy 5. Sources of information necessary to measure the different aspects of the securitisation process. Reference to Spanish sources 6. The work of the European System of Central Banks to obtain European Union securitisation statistics

3. 1. Types of securitisation regulated in Spain • Since 1982, credit institutions can raise funds issuing mortgage-backed securities, backed by their mortgage loans which remained on their balance sheet (a) • In 1992 the Fondos de Titulización Hipotecaria (Mortgage Securitisation Funds) are regulated (b) • In 1994 the Fondos de Titulización de Activos (Assets Securitisation Funds) are regulated (c) • In 2003 the synthetic securitisation is regulated (d)

4. 2. Characteristics of the FVCs created to securitise assets in Spain • The FVCs are autonomous portfolios of assets without independent legal status whose purpose is to assemble groups of financial assets and other receivables • FVCs are set up by FVC management companies which perform the functions of administration and legal representation of the FVCs • They raise funds issuing securities other than shares and borrowing from credit institutions (e) • There are open and closed FVCs • The FVCs and their management companies are supervised by the National Securities Market Commission where the incorporation prospectuses is registered and, where applicable, the issue prospectuses are also registered • Under the synthetic securitisation the counterpart of the credit derivative has to be a credit institution or a securities dealer company (resident or non-resident)

5. 3. Reform of the accounting standards for credit institutions and its effect on securitisation • In 2005 new accounting rules for credit institutions enter in force to meet the IAS, for consolidated accounts and for individual credit institutions • Under the new rules the conditions to derecognise financial assets from the balance sheet are more strict: the risks or the control of the assets should be fully transferred • These accounting rules have been applied to the securitisation originated since January 2004. Thus, some assets previously derecognised from the balance sheet had to return to it • The assets transferred to the FVC and the assets returned to the balance sheet of the credit institutions have an effect on the analysis of the credit aggregates: it is necessary to analyse the credit evolution taking into account the credit that has been derecognised from the balance sheet of the credit institutions (f)

6. 4. Recording of securitisation transactions in the Financial Accounts of the Spanish Economy

7. 5. Sources of information necessary to measure the different aspects of the securitisation process. Reference to Spanish sources (g)

8. 6. The work of the European System of Central Banks to obtain European Union securitisation statistics (h) • The objective is to measure the activity of FVCs and the true path of euro area credit aggregates • Currently the National Central Banks of the European System of Central Banks send to the European Central Bank data on sub-sector Other Financial Intermediaries on the basis of the available information: the statistics are detailed by type of intermediary, mainly Investment Funds and FVCs • To improve the data and the aggregates the intention is to introduce a homogeneous statistical framework: a guideline to produce national statistics on these financial intermediaries • For Investment Funds the work is very advanced and a draft regulation is pending endorsement. For FVCs the contents and details of the new guideline are now under discussion

9. Types of securitisation: chart 1 (1)

10. Types of securitisation: scheme 1 (2) FVC for securitise mortgage loans Mortgage loans Securities Originator: Credit institution Subscribers of the securities FVC Cash Cash

11. Types of securitisation: scheme 2 (3) • FVC for securitise assets Assets and receivables Originator FVC Securities Subscribers of the securities Cash Cash Loans (liabilities) Loans (assets) Credit institution

12. Types of securitisation: scheme 3 (4) • FVC for synthetic securitisation Premiun for transferring risks (1) Originator FVC Securities Subscribers of the securities Cash Loans (liabilities) Loans (assets) Credit institution (1) This transaction has the same effects as a credit derivative

13. Characteristics of the FVCs created to securitise assets in Spain: chart 1 (5)

14. Reform of the accounting standards for credit institutions and its effect on securitisation : chart 1 (6)

15. Sources of information necessary to measure the different aspects of the securitisation process. Reference to Spanish sources: table 1 (7)