EBA欧洲银行-Andrea-Enria-Hearing-at-the-Italian-Senate-28English-translation29_9页_257kb

Andrea Enria on the Banking Reform Package

Core Content

Andrea Enria, Chairperson of the European Banking Authority (EBA), delivered a speech on the banking reform package proposed by the European Commission, focusing on the Capital Requirements Regulation (CRR), Capital Requirements Directive (CRD), and Bank Recovery and Resolution Directive (BRRD). The reform aims to enhance the resilience of the European banking sector, improve the alignment with international standards, and ensure a more harmonised and prudent regulatory framework.

Main Views

1. Progress and Challenges in the Banking Sector

• The European banking sector has made significant progress since the financial crisis in terms of capital levels, deleveraging, and liquidity buffers.
• Non-performing loans (NPLs) remain a major challenge, especially in Italy and other Member States, where the NPL ratio is above 10%.
• The EBA has been actively involved in the reform process, publishing several reports and supporting EU-wide stress tests and recapitalisation efforts.

2. Alignment with International Standards

• The EBA supports strict compliance with global standards, such as those from the Financial Stability Board (FSB) and the Basel Committee, while allowing for some EU-specific adaptations.
• The Fundamental Review of the Trading Book (FRTB) and the implementation of IFRS 9 are among the key reforms that have been addressed.
• The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) is being revised to ensure that all banks, not just global systemically important banks (G-SIBs), have sufficient loss-absorbing capacity.

3. Proportionality in Regulation

• Proportionality is a central element of the reform, aiming to simplify regulations without reducing their effectiveness.
• The EBA advocates for a simplified application of common rules, tailored to the specific features of different business models.
• The Commission has adopted a double proportionality threshold for market risk, allowing smaller banks to use less complex methods.

4. Resolution and Bail-in Mechanisms

• The BRRD introduces a new 'senior non-preferred' liability category, which enhances the bail-in power while considering the impact on funding costs.
• The EBA supports the 'no creditor worse off' (NCWO) principle, which ensures that resolution does not result in a worse outcome for creditors than liquidation.
• The EBA warns against retroactive changes to the riskiness of financial instruments and highlights the importance of transparency in the resolution process.

5. Protection of Retail Investors

• Retail investors should be adequately informed about the risks of investment products that may be subject to bail-in.
• The EBA supports the MiFID rules for investor protection and the ESMA guidelines that require independent advice for complex products.
• The grandfathering clause could be introduced to ensure the eligibility of older instruments in the new framework.

Key Information

• NPLs: Total EU NPLs are just below one trillion euros, with some Member States, including Italy, having a ratio above 10%.
• TLAC and MREL: These are key components of the reform, aimed at ensuring banks can absorb losses during a crisis.
• Single Resolution Fund (SRF): A key mechanism of the Banking Union to limit public intervention and ensure private investors absorb losses first.
• Resolution Process: Should focus on preserving critical functions and value, not just on bail-in.
• Supervisory Reporting: The EBA supports a proportionate approach, including the development of an interactive platform for reporting templates.

Recommendations

• Ensure harmonised application of international standards across the EU.
• Mandate the EBA to monitor deviations from international standards in the final legislative texts.
• Accelerate the issuance of loss-absorbing instruments to protect senior creditors and depositors.
• Implement liability management exercises (LME) to transition to the new regime smoothly.
• Clarify and enforce investor protection rules to ensure transparency and fairness.

Conclusion

Enria concludes that the banking reform package is necessary and supports the proportionality approach. He highlights the importance of transparency, harmonisation, and effective implementation to maintain financial stability and ensure that the resolution framework works as intended. The EBA is ready to assist in the implementation and will monitor the impact of the reforms to prevent regulatory arbitrage and ensure consistent application.