EBA欧洲银行-CP16_BSA_2页_73kb

The Building Societies Associations Response to CP16 on Large Exposures

Introduction

The Building Societies Association (BSA) represents all 59 building societies in the United Kingdom. These societies collectively hold total assets of just under £325 billion, with residential mortgages accounting for over £250 billion, representing approximately 20% of the UK's total outstanding mortgages. They also manage just under £210 billion in retail deposits, which is about 20% of all such deposits in the UK. Building societies hold over 37% of all cash ISA balances and employ more than 50,000 full and part-time staff, operating through over 2,100 branches.

Core Content

The BSA has responded to the CEBS consultation on the second part of its technical advice on large exposures (CP16). This response is aligned with the British Bankers Association (BBA), as the BSA has engaged with the BBA and decided to endorse its submission on behalf of its member banks with a small capital base.

The BSA highlights that the issues raised in the BBA's response—particularly interbank exposures, intra-group exposures, and the definition of interconnectedness—are relevant to building societies. Among these, interbank exposures are identified as the most significant concern.

Main Concerns

• Interbank Exposures: The BSA is concerned that the proposed withdrawal of the exemption for interbank exposures (IBEs) with maturities less than 12 months may not fully understand the operational dynamics of interbank markets and the nature of mutual organizations. This could lead to unintended consequences for building societies.

• Creditworthiness Consideration: Although CP14 (the first part of CEBS' technical advice on large exposures) states that creditworthiness is not a factor in the large exposure (LE) regime, the BSA, in line with the BBA, believes that creditworthiness is a fundamental criterion in managing large exposures. The proposed changes in CP16 may force building societies to either:

  • Engage with counterparties that fall below their agreed creditworthiness criteria, which could compromise asset quality and liquidity.
  • Redirect liquidity into alternative instruments such as Treasury Bills, which may not align with their investment objectives.

• Impact on Liquidity and Asset Quality: The BSA emphasizes that the current eight-day liquidity requirements of building societies prioritize asset quality and the depth of liquidity, particularly in stressed market conditions. The proposed changes may undermine these priorities.

• Operational Profit Erosion: Under option 7(ii), the cost of moving assets from short-term instruments such as three-month clearing bank CDs to Treasury Bills could result in a material erosion of operating profits before tax, due to the opportunity cost associated with such a shift.

Key Information

• Total Assets: £325 billion
• Residential Mortgages: £250 billion (20% of UK total)
• Retail Deposits: £210 billion (20% of UK total)
• Cash ISA Balances: Over 37% of all cash ISA balances in the UK
• Staffing: Over 50,000 full and part-time employees
• Branches: More than 2,100 branches

Conclusion

The BSA urges the Committee to consider the concerns raised by both the BSA and the BBA regarding the implications of the proposed changes in CP16. Specifically, the BSA believes that more work and time for discussion are needed to ensure that the proposals are well-suited to the unique structure and operations of building societies. They also stress that the current approach to managing large exposures must take into account the importance of creditworthiness, asset quality, and liquidity management in maintaining financial stability and operational efficiency. Acknowledgment of this response would be appreciated to facilitate the necessary adjustments to the proposals.

Summary of Main Points

• The BSA represents 59 UK building societies with significant financial assets and deposits.
• The BSA endorses the BBA's response to CP16, as the issues are of mutual concern.
• Interbank exposures are the most pressing issue, with potential adverse impacts on liquidity and asset quality.
• Creditworthiness is considered a fundamental criterion for LE management, contrary to CP14's stance.
• The proposed withdrawal of the IBE exemption may not be well-suited to the interbank market dynamics.
• Redirecting liquidity to Treasury Bills could significantly affect operating profits.
• The BSA calls for a more nuanced approach to the regulation of large exposures, emphasizing the need for further discussion and refinement.