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CEBS Draft Proposals Summary

Core Content

The document outlines several draft proposals by the Committee of European Banking Supervisors (CEBS) aimed at revising the Capital Requirements Directive (CRD) and enhancing the regulatory framework for banking supervision across the European Union. These proposals focus on improving the calculation of capital adequacy, simplifying securitisation computations, and refining the approach to operational risk assessment.

Main Proposals and Key Points

1. Own Funds and Consolidation Methodologies

• Proposal: CEBS suggests transforming the use of alternative methodologies for consolidation (Method 1, 2, or 3) into a supervisory decision, similar to the changes proposed in the FCD.
• Key Points:
  • Method 1 is already a supervisory decision as part of the approval process.
  • The proposal includes modifications to the CRD to align with these methodologies.
  • CEBS invites feedback on whether the proposal narrows the scope of the current ND (Non-Deduction) and suggests considering the IWCFC and EFCC work, which recommend deleting Method 3.

2. Standardised Approach (1)

• Proposal: CEBS proposes removing the provision in the CRD that allows for lower risk weighting for past due exposures secured by mortgages on residential property, or keeping it as a supervisory decision with added binding mutual recognition.
• Key Points:
  • The provision is currently a permissive treatment.
  • CEBS seeks feedback on the cost/benefit analysis of this change.

3. Standardised Approach (2)

• Proposal: CEBS suggests removing the provision in the CRD that allows for lower risk weights for high-risk categories due to value adjustments, or deleting the discretionary part of the provision.
• Key Points:
  • The current provision is a permissive treatment.
  • CEBS is interested in participants' input regarding the cost/benefit analysis of this proposal.

4. Securitisation

• Proposal: CEBS aims to simplify the computation of the Supervisory Formula method for securitisations involving retail exposures.
• Key Points:
  • The proposal suggests deleting the discretionary part of the ND, making it an optional approach for Credit Institutions (CI).
  • Alternatively, the provision could be removed entirely from the CRD.
  • CEBS invites feedback on:
    • The necessity of retaining the provision
    • A possible definition of “predominantly” for securitisation purposes

5. Operational Risk (Op Risk)

• Proposal: CEBS proposes to keep provisions 61 and 63 of the ND as supervisory decisions to be applied on a case-by-case basis.
• Key Points:
  • These provisions are intended to improve the basis for assessing operational risk in institutions that meet specific criteria.
  • CEBS welcomes feedback on:
    • The costs and benefits of the proposal
    • The Alternative Standardised Approach (ASA)
    • The question of risk sensitivity, which is relevant at least on a consolidated basis
    • The availability of the approach in third countries and its potential application in the EU
    • The current application of the approach in several cases

Key Information

• Objective: To enhance the consistency, transparency, and effectiveness of the capital adequacy framework across EU banks.
• Approach: The proposals involve transforming certain provisions from the ND into supervisory decisions, simplifying risk weight calculations, and refining operational risk assessment methodologies.
• Feedback Invited: CEBS encourages participants to provide input on the implications of these changes, including cost/benefit analyses and the relevance of the approaches in different regulatory contexts.

Conclusion

The CEBS draft proposals aim to modernise and simplify the capital adequacy and operational risk frameworks under the CRD. They propose a shift from discretionary treatment to binding supervisory decisions, with a focus on harmonisation and risk sensitivity. The outcomes of these proposals will depend on the feedback received and the balance between regulatory consistency and institutional flexibility.