EBF Response to EC’s Targeted Consultation assessing the adequacy of macroprudential policies for NBFI
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Publication date: 21 November 2024
General Comments:
The European Banking Federation emphasizes the importance of tailoring regulatory approaches to the heterogeneous nature of Non-Bank Financial Intermediaries (NBFIs). Any new measures must avoid overly prescriptive, “one size fits all” frameworks that risk undermining market functionality and innovation. To enhance the oversight of NBFIs, the EBF advocates for improved data sharing and cooperation among regulatory authorities. Addressing systemic risks requires focusing on unregulated entities rather than imposing additional burdens on banks, which could inadvertently increase vulnerabilities by pushing activities toward less regulated sectors.
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]]>Publication date: 21 October 2016
Dear Mr Andrea Enria,
In April 2016, the Basel Committee on Banking Supervision (BCBS) published Standards on Interest Rate Risk in the Banking Book (IRRBB). After several years of in-depth discussions amongst regulators as well as with the industry, the BCBS re-affirmed its previous, long-standing position that IRRBB is more appropriately captured in a Pillar 2 framework.
The BCBS also concluded that IRRBB is heterogeneous by nature and that the complexities involved in formulating a standardised measure for IRRBB would not be sufficiently accurate and risk-sensitive to be used as a tool for setting regulatory capital requirements. The BCBS conclusions are particularly pertinent for Europe given the heterogeneity of the IRRBB of European banks due to the different business models and environments they operate in.
The BCBS Standards are largely consistent with the current Guidelines on the Management of Interest Rate Risk arising from non-Trading Activities published by the European Banking Authority (EBA) in May 2015. The BCBS Standards update the principles for the management of IRRBB, notably the definition as well as the threshold applicable to the Standard Outlier Test (SOT) whose role is to identify banks’ with IRRBB exposures that require supervisory engagement and possibly corrective measures.
We understood from the recently published EBA 2017 work programme that the EBA will revise its current Guidelines to incorporate the Basel Standards. To ensure consistent application in the EU, we believe the EBA Guidelines should be clear on the following principles:
- A Pillar II IRRBB capital charge should only be required when the bank is exposed to a risk of loss as opposed to variability risk due to IRRBB. The risk that exclusively creates variability in P&L or economic value (for example IRRBB due to investments of noninterest bearing liabilities and non-interest bearing equity) should not be subject to capital charges given the absence of loss risk;
- No standardised IRRBB measure would be sufficiently accurate and risk-sensitive to be used as a tool for setting capital requirements directly or indirectly (through comparing internal calculation to a standardised measure) given the differences in products, jurisdictions and client behaviours as well as IRR management practices within Europe. It follows that no element of the standardised framework set out in section IV should be written into the Guidelines;
- The SOT should only be used by supervisors to identify banks whose IRRBB exposure warrants supervisory engagement and possibly corrective action. It should not play a role in the calculation of capital (a point clearly made in the current EBA Guidelines).
The impact of any proposed changes to the outlier test on European banks’ business models should in our view be carefully analysed. We also believe that some adjustments to the BCBS Standards disclosure requirements should be made to ensure the provision of valuable public information.
The EBF would welcome the opportunity to contribute to the considerations of how to incorporate the BCBS IRRBB Standards in the European regulation. We would very much appreciate to meet with you or your services to provide our views on the implementation of the Basel standards in the EU in more details.
Yours sincerely,
Wim MIJS
Chief Executive
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]]>Pillar 1 capital charge for climate risk: Wrong tool for the right purpose
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Brussels, 9 May 2022 – Two years ago, governments, supervisors and regulators pleaded banks to use their capital, reducing the ratios, in order to keep on financing the
economy after the outbreak of the pandemic.
We learnt some lessons:
- The prudential status of the banking system is solid enough to withstand a major unexpected shock.
- However, the EU regulatory framework is too rigid. Too much weight has been put on Pillar 1 measures. So much, that authorities were trapped when their intervention was necessary.
- As a consequence, a regulatory quick fix had to be promptly enacted in order to ease off Pillar 1 measures and let banks play their role as part of the solution.
- Since then, global standard setters, central bankers, prudential regulators and academics, are discussing about how to make the prudential framework more flexible without detriment to its level of confidence. Flexibility means less hardwired regulation and more manageable and targeted prudential tools.
Climate change will bring about new risk considerations. The prudential framework offers multiple tools to tackle them progressively. Some argue that hardwired Pillar 1 capital increases by means of risk-weighted adjustment factors should be imposed. The lesson of the pandemic taught us that Pillar 1 is not the right measure at this point. It would make the regulation more rigid but not more robust.
For more information:
Gonzalo Gasos, Senior Director of Prudential Policy & Supervision g.gasos@ebf.eu
Denisa Avermaete, Senior Policy Adviser – Sustainable Finance d.avermaete@ebf.eu
Lukas Bornemann, Policy Adviser – Prudential Policy & Supervision l.bornemann@ebf.eu
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About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
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]]>CONSULTATION RESPONSE
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ESMA consultation on amendments to MAR Guidelines on delayed disclosure of inside information: EBF response
BRUSSELS, 6 September 2021 –
The EBF has responded to the consultation of the European Securities and Markets Authority on its Guidelines on delayed disclosure of inside information under the Market Abuse Regulation (MAR) in relation to its interaction with prudential supervision.
In its response, the EBF has highlighted the following key points:
- Regarding the disclosure of decisions regarding redemptions, reductions and repurchases of own funds instruments, the EBF would like to state that this information should only be treated as inside information once the authorisation of the Prudential Competent Authority has been granted, and, in addition, the institution has sufficient certainty that the redemption, reduction and repurchase of own funds will take place. The same reasoning should apply to other decisions where the approval of a committee, third-party or authority is still pending.
- Regarding the disclosure of draft SREP decisions, it should be noted that draft SREP decisions in the view of the EBF do not yet meet the requirement for precision to be qualified as inside information. It is only that they can be seen as representing precise information once the dialogue with the supervisor has been concluded and the final SREP letter is received, which also details the measures that the bank has to comply with in the end. Other supervisory measures (question 8 of the consultation paper) should be subject to a case-by-case assessment.
- Regarding the disclosure of the Pillar 2 Requirement (P2R), the EBF would like to stress that there is already extensive disclosure of this information as part of the Pillar 3 disclosures. A case-by-case assessment about the actual price sensitivity of this information is a more appropriate approach.
- Regarding the disclosure of Pillar 2 Guidance (P2G), the EBF considers that as a matter of principle P2G should not be considered as inside information, due to the fact that this is a non-binding requirement. P2G does not have any impact on the maximum distributable amount (MDA) of an issuer. Instead, a non-disclosure of this information would ensure that the P2G remains an important instrument in the supervisory dialogue. This is best accomplished if it remains confidential and also aligned with the spirit of the regulation. Finally, it is also important to remark that is a very common situation that institutions meet their P2G and that those situations should not be considered as exceptional.
Lastly, where information needs to be assessed on a case-by-case basis regarding its potential status as inside information, it is important to also reflect on the issuer’s responsibility to assess this. Therefore, we would hope that this could also be reflected better in the language of the ESMA communication.
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FOR MORE INFORMATION:
Lukas Bornemann, Policy Adviser – Prudential Policy & Supervision, l.bornamann@ebf.eu
ABOUT THE EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere. Website: www.ebf.eu
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]]>LEGAL OPINION
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Legal opinion on the compliance of the parallel stacks approach with Basel Accord
BRUSSELS, 23 June 2021 – A legal opinion by a European Network of leading continental law firms found that the so-called parallel stacks approach – applying the output floor to the Basel Minimum Requirements and implementing the result as an additional, stand-alone capital requirement – is compliant with Basel Accord. The study, commissioned by the European Banking Federation (EBF), was undertaken by Chiomenti, Cuatrecasas, Gide Loyrette Nouel and Gleiss Lutz law firms.
The EBF has identified a number of concrete options to make the implementation of Basel IV more suited to the European specificities, including the possibility to implement the output floor as a separate capital requirement where only internationally agreed capital buffers are applied (the so-called parallel stack approach), solutions to avoid penalising unrated corporates which form the vast majority of companies in Europe, a cap to the operational risk requirement in line with other jurisdictions, as well as maintaining the options already enacted in European legislation (CVA, SME supporting factor, etc.). All these elements are key to ensure the proper implementation of the Basel Framework in Europe.
The legal study findings confirm that the parallel stacks approach can be used by the EU as transposition of the Accord. This approach would respect the mandate received from the Council and the Parliament. This would be in line with the direction to avoid a significant increase of overall capital requirements, put forward by the G20. The alternative of calculating and applying the output floor to the Additional European Requirements would go beyond the conditions outlined in the Basel III framework. This would constitute an unwarranted, disproportionate ‘gold-plating’ exercise, whereby powers of an EU directive are extended when being transposed into the national laws of a member state.
In light of the upcoming EU implementation of the reform and the potential impact of the COVID-19 crisis, Copenhagen Economics has published a report assessing the impact of the reform on the EU banking sector and the real economy. Among other things, the research commissioned by EBF found that the reform could increase the capital need of European banks by between EUR 170-230 bn. The impact on bank customers as an annual increase in costs associated with lending is estimated at EUR 25-30 bn.
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FOR MORE INFORMATION:
Ruta Barthet, Senior Media and Communications Officer, r.barthet@ebf.eux
Gonzalo Gasos, Senior Director of Prudential Policy & Supervision, g.gasos@ebf.eu
ABOUT THE EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere. Website: www.ebf.eu
Subscribe to the EBF Weekly + FinReg Agenda
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INDUSTRY JOINT COMMUNICATION
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EBA feasibility study of an integrated reporting system under Article 430c CRR: Industry Joint Communication
BRUSSELS, 16 June 2021 – The European Banking Federation (EBF), the European Association of Co-operative Banks (EACB), the European Association of Public Banks (EAPB) and the European Savings and Retail Banking Group (ESBG), representing the entirety of the European banking industry, have individually submitted responses to the EBA consultation on the feasibility of an integrated reporting system for regulatory reporting. The banking associations stress how critical it is to improve the efficiency of reporting in Europe. The banking industry has been calling for the creation of an integrated and standardized framework for data reporting in order to improve the quality of data while reducing the reporting burden for the industry without reducing the information content for authorities.
The banking associations welcome the work done by the EBA, in coordination with all other relevant authorities, towards the assessment of the feasibility of such integrated reporting system for collecting statistical, resolution and prudential data. Banks in Europe are strongly committed to working together and to working with all authorities to turn this vision into reality ensuring the new system is feasible for both authorities and industry. While dialogue takes place towards identifying the most suitable way forward, we encourage the EBA to continue giving proportionality the required relevance in the discussion.
An efficient solution needs to be built around the following principles:
- Define Once: using a single data dictionary with all the data definitions.
- Report Once: enhancing reusability and interoperability of the data.
- Share Information: amongst the authorities instead of asking several times for data that has been already provided.
- Enhanced Governance: including the advice of the industry as the main stakeholder in every new data request.
Furthermore, the banking industry calls authorities to target as first concrete action the establishment of the Joint Committee, with involvement of the industry, to begin steering the main aspects of the integrated reporting system. A timely and proper functioning of the Joint Committee is key to move the project forward and start assessing all technical aspects with the development of a single EU data reporting dictionary. This is the cornerstone of an integrated and standardized EU framework, and therefore the top priority. Any further step should also aim to provide a long-term timeline to facilitate the assessment of the impact of the proposal.
The industry appreciates the complexity and long-term perspective of such an ambitious project. At the same time, we believe it is time to put all efforts to work towards a streamlined system.
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For more information
Francisco Saravia, Senior Policy Adviser – Prudential Policy & Supervision, f.saravia@ebf.eu
Media contact:
Ruta Barthet, Senior Media and Communications Officer, r.barthet@ebf.eu
About the EBF:
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere. Website: www.ebf.eu Twitter: @EBFeu.
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Over the past year, the European banking industry has been hit by volatile markets, worsening economic conditions and business continuity challenges. As a result, lenders have moved more quickly to build real-time data and analytics into their credit risk systems.
Join industry experts as they explore the impact across the banking landscape and how default assessment plays a pivotal role in the recovery:
- The general trend in credit quality at Europe’s banks
- The nonperforming loan market: Pandemic versus global financial crisis
- Asset quality deterioration: Key constraints and challenges
- How credit score distribution differs between 2019 and 2020
- Key lessons from trade credit data and alternative data sets
WATCH THE FULL WEBINAR
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Gonzalo Gasos
Senior Director of Prudential Policy & Supervision
European Banking Federation
MODERATOR
Ben Meggeson
News Desk Manager – European financials, S&P Global Market Intelligence
ORGANISERS
S&P Global Market Intelligence
S&P Global Market Intelligence integrates financial and industry data, research and news into tools that help track performance, assess credit risk, understand competitive and industry dynamics, generate alpha, identify investment ideas, and perform valuation. S&P Global Market Intelligence is a division of S&P Global (NYSE: SPGI). For more information, visit www.spglobal.com/marketintelligence. Twitter handle: @SPGMarketIntel
European Banking Federation
The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from 45 countries. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.
The post Managing Credit Risk during the COVID-19 Crisis & Recovery Phase in Europe appeared first on EBF.
]]>EBF advisor: Gonzalo Gasos
Publication date: 14 March 2019
Executive summary
In recent months, supervisors and regulators have become increasingly concerned about potential window-dressing practices. The concern of supervisors is that some banks do not live up to their responsibility to maintain a sufficiently high leverage ratio and only meet the leverage ratio requirement when they have to report to supervisors. Several comments have sparked a debate on the global and European level that prompted the BCBS to launch a consultation with the aim to prevent those practices.
The EBF encourages supervisors to use their powers to enforce this requirement on an entity-specific basis. Furthermore, the EBF deems it important to further analyse and gain a better understanding of the market dynamics that could potentially indicate window-dressing. Those measures are necessary to limit the regulatory impact of those measures on banks that are compliant with the leverage ratio requirements. Moreover, the EBF believes that the final standards of the BCBS should be applied according to the local proportionality rules.
EBF contact:
Gonzalo Gasos, Head of Banking Supervsion, g.gasos@ebf.eu
Lukas Bornemann, Prudential Policy and Supervision, l.bornemann@ebf.eu
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The post BCBS’ revision of leverage ratio disclosure: EBF response appeared first on EBF.
]]>FROM THE EUROPEAN BANKING FEDERATION:
Risk Reduction Measures Package adopted in the EU Parliament
BRUSSELS, 16 April 2019 — The European Banking Federation sees the final vote today on the Risk Reduction Measures Package by the European Parliament as an important step towards the completion of the Banking Union, aimed at reducing risks in the banking sector as well as enabling banks to be stronger, more stable and more resilient.
Since the 2007 financial crisis, the European banking sector has always been supportive of the work conducted to implement reforms agreed at international level to strengthen the banking sector and address outstanding challenges to financial stability, including the intensive efforts to build this Risk Reduction Measure Package since November 2016.
The EBF regrets that the package failed to overcome most of issues leading to banking market fragmentation across the EU. Important constraints to free flow of capital and liquidity across the EU are still not properly addressed, ending-up in hampering risk-sharing across the Banking Union.
Says Wim Mijs, Chief Executive Officer of the European Banking Federation:
“Today’s vote marks an important step in the implementation of Basel III reform. European banks believe that it now is high-time to take stock of all the banking regulatory reform and assess its efficiency before rushing into additional rules.
“European banks now will have to allocate significant resources to deal with the approximately 70 mandates from the European Banking Authority. These mandates aim at correctly implementing the EU Banking Package in the respective jurisdictions, together with the transposition in EU law of the completion of the Basel III rules.
“To avoid a further deterioration of the profitability of European banks the European Union should now aspire to reinforce the attractiveness of the EU economy, while promoting a competitive banking sector as well as reviving the Capital Markets Union project.”
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]]>Publication date: 8 May 2019
Executive summary
In April 2016, the Basel Committee on Banking Supervision (BCBS) published the Standards on Interest Rate Risk in the Banking Book (IRRBB).
The forthcoming Capital Requirements Directive (CRD 5) and Capital Requirements Regulation (CRR 2) implement the BCBS Standards in the regulatory framework of the European Union. The final text of the so-called Risk Reduction Measures (RRM) package including CRD 5 / CRR 2 was adopted by the European Parliament in mid-April 2019 and will need to be applied in two years.
CRD 5 mandates the European Banking Authority (EBA) to complement the directive by drafting Regulatory Technical Standards (RTS) to submit to the European Commission or by issuing guidelines within one year after the publication. In this context, the European banking industry, through the European Banking Federation (EBF), decided to articulate this memorandum which specifies the ”European Banking Industry Common Understanding of CSRBB as defined by EBA Guidelines”. The EBF uses this paper to provide its views on the EBA Guidelines’ definition of CSRBB, the monitoring process and the assessment of the framework.
EBF contact:
Lukas Bornemann, Prudential Policy and Supervision, l.bornemann@ebf.eu
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The post Credit Spread Risk in the Banking Book: EBF position appeared first on EBF.
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