EBA欧洲银行-BSG-response-to-Consultation-Paper-28EBACP-20143629209-March-2015_10页_386kb

EBA Banking Stakeholder Group Consultation on EBA/CP/2014/36 Summary

Core Content

The EBA Banking Stakeholder Group (BSG) has provided detailed comments on the draft Regulatory Technical Standards (RTS) EBA/CP/2014/36, which aim to harmonize the methodologies Competent Authorities (CAs) use to assess whether banks comply with the requirements to use the Internal Ratings-Based (IRB) approach under the Capital Requirements Regulation (CRR). The BSG supports the initiative to promote consistency, transparency, and comparability in internal ratings across Europe, which are essential for fair competition and efficient cross-border operations.

Main Views and Key Points

1. Proportionality Principle

• The BSG acknowledges the importance of the proportionality principle but highlights the need for further clarification on its application.
• Specific areas requiring more detail include:
  • How the principle applies to less significant portfolios and solo entities.
  • The definition of "additional methods" to avoid ambiguity.
  • Clarification on the timeframe for developing new ratings and whether the three-year minimum from Article 145 applies.
  • Definitions of "complexity" and "size" to ensure uniform application across member states.

2. Independence of Validation Function

• The BSG agrees with the independence requirement for the validation function but suggests that the separation should be flexible, especially for smaller institutions.
• They argue that strict separation may be inefficient and costly for small-to-medium-sized banks.
• The BSG also raises concerns about the impact of Article 4(3) on pool models, where a central unit is involved in both model development and validation, and recommends allowing such involvement under certain independence conditions.

3. Long-Run Average of One-Year Default Rates

• The BSG finds the provisions in Article 49(3) reasonably clear and based on sound methodological practice.
• They suggest clarifying the definition of "observed data" to allow for more flexible use of reconstruction methods, especially when internal data is limited or not representative of a full economic cycle.

4. LGD Calculation Methods

• The BSG supports the requirement for a default-weighted average LGD calculation method for standard portfolios.
• However, they emphasize the need for flexibility in LGD estimation for low-default or concentrated portfolios, to ensure that the method remains reliable and not overly conservative.

5. Treatment of Multiple Defaults

• The BSG considers the provisions in Article 52 to be appropriate and reasonable.
• They support the approach of allowing flexibility in cure periods, as long as it is justified by empirical data and internal policies.

6. Eligible Guarantors and Own-LGD Estimates

• The BSG sees value in clarifying how the impact of guarantees should be included in capital requirement calculations.
• They stress the importance of ensuring that institutions clearly treat credit mitigation through guarantees in their models.

7. Implementation Costs

• The BSG does not believe the implementation costs of the draft RTS will be negligible.
• They identify several cost-sensitive areas, including:
  • Changes in validation criteria affecting ongoing approval processes.
  • New rules for multiple defaults and PD estimation over a complete economic cycle.
  • Reconstruction methods for non-representative data, which may lead to higher PD estimates and increased capital requirements.
  • The joint introduction of IFRS 9 and Basel Committee floors, which may amplify the costs.
• They recommend a pragmatic and proportionate approach to minimize unnecessary burdens, especially for smaller institutions.

8. Benefits of the Draft RTS

• The BSG expects the RTS to reduce subjective interpretations of regulatory requirements.
• They anticipate increased consistency and harmonization among CAs, jurisdictions, and banks.
• Enhanced accountability and transparency are also seen as key benefits, which can contribute to the credibility of capital requirements.

9. Material Changes to Rating Systems

• The BSG believes the draft RTS may trigger material changes to rating systems, depending on the bank's internal practices and the local regulatory guidelines.
• They caution that overly conservative rules may lead to unnecessary burdens and reduced effectiveness, especially if not properly aligned with the proportionality principle.

Conclusion

The BSG generally supports the EBA's efforts to improve the IRB framework, but emphasizes the need for clarity, flexibility, and proportionality in the draft RTS. They urge the EBA to consider the implications of these standards on small-to-medium-sized institutions and to develop tools that facilitate cross-jurisdictional benchmarking and peer review.