The securitisation industry has lost its campaign to persuade the Australian Prudential Regulation Authority to take a hands-off approach to the capital treatment of subordinated securitisation tranches on the balance sheets of approved deposit-taking institutions.Last November, APRA issued a discussion paper proposing an amendment to its prudential standard for securitisation (APS 120) that would require an ADI to deduct from tier-one common equity any holdings of subordinated tranches of securitisations that were originated by another entity.Industry submissions argued that the practice of swapping subordinated tranches of securitisations was not widespread and APRA should respond to individual cases, rather than impose additional requirements on ADIs.The submissions also argued that the proposal should not apply to securitisations originated outside the ADI industry because such transactions do not lead to a reduction in system-wide capital holdings.APRA rejected these arguments. In a response to submissions issued last week, it said: "Securitisation can be a useful tool for transferring risk from the ADI industry. "If securitisation is used to move risk around within the ADI industry or to bring risks originated by non-ADIs into the ADI industry, those risks are not appropriately captured by APRA's existing prudential framework. "If risks associated with securitisation remain within the ADI industry, it is preferable that ... [such] be retained by the originator."The industry also failed to shift APRA's position on how it defined subordinated tranches. It said a subordinated tranche was any tranche that was exposed to the bottom 10 per cent of the initial capital structure, unless that tranche is also the most senior.Submissions argued that defining a subordinate tranche based on credit ratings is preferable to the proposed 10 per cent rule.However, APRA said the financial crisis had demonstrated the risks of over-reliance on assessments by credit rating agencies, especially in relation to the risks associated with securitisation structures.