The Basel Committee on Banking Supervision has released a consultation document proposing revisions to the Basel securitisation framework. The paper calls for a complete re-working of the way banks calculate how much capital they need to hold against potential losses affecting asset-backed securities. Under the proposed changes the minimum risk-weighting for securitised assets held by banks that use the internal ratings-based approach to calculate capital adequacy, will increase to 20 per cent. The current minimum is seven per cent, and an increase to 20 per cent will align with the minimum risk-weighting that must be applied by banks that use the standardised approach.The latest proposals come after the July 2009 enhancements to the Basel II framework (known as Basel 2.5), intended to address deficiencies identified during the financial crisis. The Committee subsequently agreed to conduct a more fundamental review of the securitisation framework, including its reliance on external ratings.The Committee identified a number of shortcomings within the current securitisation framework, categorised broadly as:• mechanistic reliance on external ratings;• inappropriately low risk-weights for highly rated securitisation exposures;• inappropriately high risk-weights for low-rated senior securitisation exposures;• cliff effects in capital requirements, following deterioration in the credit quality of the underlying pool.Complex enhancements to the current ratings-based approach and in the supervisory formula approach included in the Basel II securitisation framework are being proposed. The enhancements are intended to create more risk-sensitive and prudent calibration. The enhanced approach will also incorporate additional risk drivers, such as maturity.Comments from interested parties are requested by mid-March. If the proposed enhancements are implemented, the Australian Prudential Regulation Authority can be expected to follow. This will impact on the four major banks that use the internal ratings-based approach to calculate capital adequacy, but it will remove a competitive disadvantage for the other banks, which use the standardised approach.