EBA欧洲银行-LE_VDEW_6页_121kb

Summary of Consultation on Large Exposures – Input to the Credit Risk Mitigation Workstream

Core Content

The document outlines the position of the German Electricity Association (VDEW) regarding the review of the Large Exposures rules under the Capital Requirements Directive (CRD) and the implications of applying these rules to energy trading companies. The VDEW emphasizes that energy trading should not be subject to the same capital requirements as traditional financial institutions due to the fundamental differences in market structure and risk profile.

Main Points and Key Information

1. Introduction and Context

• The consultation process on Large Exposures is part of the European Commission's call for technical advice (No.5).
• The VDEW represents over 750 energy utilities, covering more than 90% of the German electricity market.
• Energy trading companies, now under MiFID, must comply with CRD and Banking Directive rules, which were originally designed for financial institutions.

2. Importance of Energy Trading

• Energy trading is crucial for the functioning of the internal energy market and supports competitive pricing and customer focus.
• It enables risk management through hedging and ensures security of supply.
• Reliable price references from energy exchanges are vital for the development of sophisticated financial products.

3. Systemic Risk Differences

• Energy trading does not pose the same level of systemic risk as the financial market.
• Unlike banks, energy trading companies primarily deal with physical delivery and not financial instruments.
• The insolvency of an energy trader (e.g., ENRON) does not significantly affect the capital market, as generation capacities remain available.

4. Diverging Market Structures

• Energy companies have a different business model compared to financial institutions, involving multiple stages such as generation, trading, and distribution.
• Transactions are often for supply purposes, not for speculative financial gain.
• Intra-group trading is essential for risk management, and strict capital rules could hinder this.

5. Unsettled Transactions

• Energy trading typically involves deferred billing and payment, which is not aligned with the timing of credit exposure under the Large Exposure Directive.
• This could lead to premature capital requirements, limiting the ability of energy companies to engage in trading.
• VDEW recommends an exemption for unsettled transactions in energy trading, especially for electricity, to avoid overstatement of risk exposure.

6. Long Term Contracts

• Long-term supply contracts are common in energy trading and are considered normal business activities.
• These contracts, however, may be classified as credit risk under the Large Exposure Directive, leading to capital constraints.
• VDEW suggests that the directive should account for the nature of these contracts to avoid misclassification.

7. Collateral Acceptance

• Energy trading companies use different forms of collateral such as inventory, debt guarantees, and letters of comfort.
• These are not typically used in the financial sector and are not compatible with the IRB method.
• VDEW recommends allowing the use of such guarantees under the Standard Approach for counter-party risk.

Conclusion and Recommendations

• VDEW supports harmonized rules for financial and commodities markets but stresses the need for differentiation.
• They recommend:
  • Exemptions for unsettled transactions in energy trading.
  • Adjustments to the classification of long-term contracts.
  • Recognition of alternative collateral forms in the energy sector under the Standard Approach.
• The association urges the CEBS to consider these points when providing advice to the European Commission to ensure the continued development of liquid and functioning energy trading markets in the EU.