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EAPB Comments on CEBS' Second Consultation Paper on Large Exposures Rules

Core Content

The European Association of Public Banks (EAPB) has submitted detailed comments on CEBS' second consultation paper regarding the review of the Large Exposures rules. The EAPB emphasizes the importance of maintaining the current regulatory framework while promoting alignment with solvency rules to reduce costs and improve efficiency.

Main Views and Key Information

1. General Remarks

• Positive Feedback: EAPB members generally welcome CEBS' comprehensive analysis and the proposed retention of the current limit-based regime.
• Support for Current Rules: The existing large exposures regime has proven effective and should not be unnecessarily tightened.
• Alignment with Solvency Rules: EAPB strongly advocates for greater alignment between large exposures and solvency rules to achieve synergies and reduce compliance costs.
• Concerns on "Interconnectedness": The proposed broadening of the definition of "interconnectedness" is seen as too vague and could lead to significant implementation challenges and unintended consequences, particularly for small and medium-sized enterprises (SMEs).

2. Detailed Comments

2.1. Definition of Large Exposures - "Interconnectedness"

• Rejection of Broad Interpretation: EAPB opposes the expansion of the "interconnectedness" criterion, arguing it introduces too much ambiguity and could lead to excessive grouping of clients.
• Recommendation: Suggests the removal of the "interconnectedness" criterion from Art 4(45) of the CRD.

2.2. Definition of Exposures Value - Off-Balance Sheet Items

• Support for Alignment: EAPB supports aligning large exposures and solvency rules for off-balance sheet items.
• Conversion Factor: Opposes the introduction of a 100% conversion factor for standardised and foundation IRB institutions, as it would be overly conservative and disruptive.
• Advanced IRB Institutions: Supports the use of own calculations for advanced IRB institutions but rejects the requirement for additional approval tests.

2.3. Credit Risk Mitigation

• Eligibility of Collateral: Supports CEBS' view on real estate and financial collateral being eligible for large exposure purposes.
• Guarantees and Collateral: Suggests a clear method for calculating exposure values using adjusted collateral or guarantee values, and emphasizes the need for alignment with solvency rules.

2.4. Trading Book Issues

• Current Policy Adequate: EAPB believes the existing rules on assigning positions to the trading or banking book are appropriate and should remain unchanged.
• No Necessity for Change: The current limits have been effective and there is no justification for altering them at this time.

2.5. Intra-Group Exposures

• Support for Member State Discretion: EAPB supports the current provisions allowing Member States to exempt intra-group exposures.
• Opposition to Subsidiary Limits: Rejects the introduction of a large exposure limit for group subsidiaries, as it would hinder liquidity management and create competitive disadvantages.
• Proposal for Higher Limit: Suggests raising the large exposure limit for non-bank group undertakings from 20% to 25% due to better information availability within the group.

2.6. Interbank Exposures

• Opposition to Further Regulation: EAPB urges CEBS not to propose additional regulations on interbank exposures, as they could negatively impact smaller banks.
• Support for Risk-Based Treatment: Advocates for considering the lower risk of short-term interbank exposures (up to one year) and potentially offering preferential treatment for longer-term exposures.
• Collateral Concerns: Notes that collateral requirements for derivative transactions may be unnecessary and could create compliance burdens.

2.7. Reporting

• Preference for Option 3: Supports CEBS' proposed Option 3, which involves reporting to supervisory authorities based on definitions set by supervisors.
• Opposition to Pillar III Reporting: Strongly opposes Option 1 (Pillar III reporting), citing potential negative market impacts and the sufficiency of existing regulatory capital requirements.

Conclusion

EAPB emphasizes the need to maintain the current large exposures regime, align it with solvency rules where possible, and avoid introducing overly complex or restrictive criteria. They advocate for a harmonized and efficient approach that supports the stability and competitiveness of public banks across Europe.