The term "Asset-Backed Securities" (ABS) comprises securities and certificates of indebtedness representing payment claims against a special purpose vehicle ^[1] established solely for the purposes of the ABS-transaction. The payment claims are "backed" by a pool of uncertified receivables ("assets") which are transferred to the special purpose vehicle and serve as security, largely for the benefit of the holders of the Asset-Backed Securities ("investors").

I.

Credit institutions selling their own receivables in the context of ABS-transactions no longer need to include the receivables sold when applying banking supervisory credit limitation principles - in particular Own Funds-Principle I (Grundsatz I) - provided no counterparty risk regarding such receivables is retained. If and to the extent that market and liquidity risks remain, they are to be provided for separately.

In particular, these preconditions are satisfied if

1. there is a legally valid transfer of the receivables;
2. recourse against the seller of the receivables, other than recourse based on liability for the legal existence or compliance with the eligibility criteria, is excluded;
3. no substitution of receivables takes place between the purchaser and the seller after the transfer, other than substitutions due to non-compliance with the contractually agreed eligibility criteria,
4. if the seller has a right to repurchase, it is limited to a rest-portfolio of less than 10% of the receivables transferred; the repurchase may only take place upon completion of the transaction (full payment to the investors) and only at the current value;

5. neither the seller of the receivables nor any affiliate within the meaning of § 10a of the German Banking Act ("KWG") participates in the financing of the special purpose vehicle during the transaction; any loans to the special purpose vehicle may therefore only be granted up to the transfer of the receivables provided the following preconditions are met:

   1. 1. the loan is subordinated and is only to be repaid upon completion of the transaction;
   2. disclosure in the sales prospectus;

   3. deduction of the loan from the (liable) own funds of the seller or the affiliate, as the case may be, in full;

   collateral structures that are integrated in the structure of the ABS-transaction at its commencement - customary are overcollateralisation ^[2], purchase price discounts ^[3], subordination ^[4] and cash collateral accounts ^[5] - are not affected thereby.

6. in the event of the placement of the ABS, the seller of the receivables

   1. 1. does not bear the placement risk as an underwriter, and

   2. does not acquire for its own portfolio any of the ABS issued in the transaction on the primary market (direct purchase);

   any purchase of such securities in the secondary market may only be at the current market price and must not involve the granting of the credit to the special purpose vehicle or the investors; securities purchased must be considered for the purposes of Own Funds-Principle I.

7. adequate measures are taken to prevent any future de facto obligation of the credit institution selling the receivables to guarantee the obligations of the special purpose vehicle in case of financial difficulties;

   1. 1. there must be no corporate group, company law, capital or personal connection between the selling credit institution and the special purpose vehicle or the trustee;
   2. the name of the selling credit institution must not be identical or similar to the name of the special purpose vehicle;
   3. the sales prospectus must indicate clearly that only the special purpose vehicle is liable for claims of investors and that a guarantee obligation of the seller of the receivables exists only to the extent that it has been expressly undertaken.

II.

The receivables to be sold should be selected randomly within the scope of the contractual eligibility criteria. Should the portfolio deteriorate substantially notwithstanding a random se-lection procedure, the Federal Banking Supervisory Office will asses whether "special circumstances" (Sonderverhältnisse) within the meaning of paragraph 2 sentence 3 of the preamble of Own Funds-Principle I exist.

III.

ABS-transactions must not affect the due execution of banking transactions; in particular, they must not be potentially detrimental to the confidential relationship between credit institution and customer, or subject the customer to the risk that the loan agreement could be settled in a manner not appropriate to the banking relationship. The confidential relationship between a credit institution and its customers finds particular pronunciation in bank secrecy.

Compliance with bank secrecy generally requires the debtor of the receivable to expressly consent to the transmission of his personal data in the event of a transfer of the receivable. In this case the transaction, the nature of the data to be transmitted and their purpose, as well as the group of potential addressees of the data must be disclosed to the customer.

No consent is required, however, if the transferring credit institution itself services the loan as service agent, including collection by debit authorisation (Einziehungsermächtigung), because in this case a transmission of customer-related data to the transferee of the receivables is not required.

If the transferring credit institution is replaced by a new service agent because of its insolvency or serious default of its contractual obligations under the servicing agreement, the new service agent must be a domestic credit institution or a credit institution supervised in accordance with the EU Banking Directives and have its seat in another member state of the European Communities or in a state party to the Convention on the European Economic Area.

Irrespective of whether the transferring credit institution assumes the function of service agent or not, no approval of the debtor of the receivable is required for the transmission of data which, in order to comply with that principle of law of property (sachenrechtlicher Bestimmtheitsgrundsatz) requiring exact specification of the receivable transferred and to enable such adequate legal enforcement as may be necessary from time to time by the transferee of the receivables, are indicated only in encrypted form in the declaration of transfer, the encryption key being deposited under seal with a neutral party (notary, domestic credit institution or credit institution supervised in accordance with the EU Banking Directives and having its seat in another member state of the European Communities or in a state party to the Convention on the European Economic Area),

or

the transmission of which to a third party (rating agency, auditor, trustee) in connection with the ABS-transaction is absolutely indispensable for technical reasons (identity of the customer is not disclosed). Such third persons must be obliged to ensure confidentiality.

IV.

Until further notice credit institutions are obliged to notify myself and the German Federal Bank (Deutsche Bundesbank) agreements entered into concerning the sale of receivables in connection with ABS-transactions and to submit the material contracts, in particular the terms and conditions of the issue and the information memorandum. The auditor of the credit institution must, in his report on the audit of the annual accounts, comment on any material deterioration of the portfolio caused by an ABS-transaction.

^[1]

Zwecks Vereinfachung der Darstellung wird auf die im Ausland häufig anzutreffende Unterscheidung zwischen einer Gesellschaftskonstruktion und einer Trust-Konstruktion nicht eingegangen und nur von der "Zweckgesellschaft" gesprochen. Die Entscheidung für die eine oder andere rechtliche Konstruktion ist für die bankaufsichtliche Behandlung dieses Gegenstandes ohne Relevanz.

^[2]

Das der Zweckgesellschaft übertragende Forderungsvolumen übersteigt den Nominalwert der von diesem emittierten Wertpapiere.

^[3]

Der von der Zweckgesellschaft zu entrichtende Ankaufpreis der Forderungen liegt unter ihrem Buchwert (Discount-Lösung).

^[4]

Es werden (zumindest) zwei verschiedene Tranchen - eine vorrangig zu bedienende ("Senior"-)Tranche und eine nachrangig zu bedienende ("Junior"-)Tranche - von ABS ausgegeben. Die nachrangige Emission dient als "Verlustpuffer" für die vorrangige Emission.

^[5]

Auf dieses Konto fließt die Differenz zwischen den auf die Forderungen eingehenden Zinsen (und eventuell auch Tilgungsleistungen) und den zur Bedienung der ABS erforderlichen Cash Flows. Aus den Guthaben kann ein eventuelles Defizit an bestimmten Auszahlungsterminen gedeckt werden.

Translation prepared by Oppenhoff & Rädler and Linklaters & Paines, Mainzer Landstraße 16, 60325 Frankfurt am Main. Contact persons: Dr. Eva Reudelhuber (+49-69 - 71003-453) and Frank R Gärtner (+49-69 - 71003-673). Mainzer Landstraße 16, 60325 Frankfurt am Main. Contact persons: Dr. Eva Reudelhuber (+49-69 - 71003-453) and Frank R Gärtner (+49-69 - 71003-673).