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CEBS Consultation Paper on the New Solvency Ratio: Summary

Core Content

The European Banking Federation (FBE) has responded to the CEBS consultation paper on the development of a common reporting (CoRep) framework for the solvency ratio. The FBE supports the initiative to reduce reporting burdens and promote supervisory convergence across the EU, especially for cross-border banks. However, it emphasizes the need for proportionality, simplicity, and alignment with existing standards like FinRep and XBRL Taxonomies.

Main Points and Key Messages

1. Common Reporting Framework

• The FBE supports the goal of common reporting but believes the current proposals are overly detailed and comprehensive.
• It advocates for best practice consultation rather than all practice, to avoid unnecessary complexity.
• The FBE suggests that mutual recognition of home state reporting standards could be an effective alternative to achieving a common framework without increasing the burden on banks.

2. Scope of Reporting

• The FBE believes that the scope should be limited to Pillar I requirements, as Pillar II elements like concentration risk are difficult to measure and cannot be adequately captured through standardized quantitative reports.
• It urges CEBS to restrict reporting to essential components such as risk exposures, weighted assets, and own funds, to avoid excessive data collection.

3. Alignment with Other Initiatives

• The FBE stresses the importance of aligning CoRep with FinRep and XBRL Taxonomies to avoid duplication and ensure consistency.
• It criticizes the delay in the FinRep proposals, which has created a misalignment between the two frameworks, undermining the objective of reducing reporting burdens.

4. Technical and Practical Concerns

• The FBE highlights that the current draft of CoRep could lead to an excessive number of reports (e.g., over 2,000 for a large bank), which is not proportionate and would increase administrative costs.
• It questions the practicality of using IFRS book values, local GAAP, or contractual values for exposure calculations and requests clarity on these matters.

5. Reporting Formats and Terminology

• The FBE prefers the use of Tier I, II, and III capital terms, which are widely used and well-established in banking taxonomy.
• It calls for a clearer and more user-friendly format in the templates, especially for Annexes 1 and 2, which are currently difficult to navigate.

6. Exposure Classes and Classification

• The FBE notes that the exposure classes in the templates do not align with the Standardised Approach (SA) as outlined in the Capital Requirements Directive.
• It suggests that either the 16 SA classes should be used or they should be mapped to the 7 IRB classes to avoid confusion and reduce administrative burden.

7. Additional Principles

• The FBE urges CEBS to explicitly consider three key principles:
  • Proportionality: Only the most essential data should be collected, and the complexity of reporting should be proportional to the business.
  • Reducing Burden: The common reporting framework should aim to reduce compliance costs, especially for cross-border banks.
  • Cost-Benefit Analysis: CEBS should provide a clear economic rationale for its proposals to justify the costs and benefits.

8. Implementation and Guidance

• The FBE requests implementation guidance on collateral allocation and indirect risk exposures under IRB approaches.
• It also calls for clarity on the timetable for CoRep implementation, as some jurisdictions may require at least 12 months for full adoption.

Detailed Remarks on Templates

• The use of national discretions and IFRS filters should be minimized to avoid competitive distortions.
• The CRM templates are criticized for being overly burdensome and should be revised to focus on reporting rather than calculation.
• The FBE proposes the deletion of certain data fields, such as the number of borrowers in retail portfolios, as they do not add meaningful value.
• The securitisation tables are not yet commented on due to ongoing discussions with national regulators.

Conclusion

The FBE encourages CEBS to refine its proposals to ensure a proportionate, harmonized, and practical common reporting framework that aligns with existing standards and reduces the administrative burden on banks. It emphasizes the importance of clarity, simplicity, and alignment with both regulatory and accounting frameworks to achieve a truly level playing field in Europe.