EBA欧洲银行-Session-3.2-Governance-German-Espinosa_13页_331kb

EBA Workshop Summary: "The Application of the Principle of Proportionality in the Context of Institutional and Regulatory Reforms"

Core Content

The EBA (European Banking Authority) workshop on July 3, 2015, focused on the application of the principle of proportionality in the context of institutional and regulatory reforms within the banking sector. The discussion centered around training needs of management bodies, diversity and independence of mind, and supervisory functions in both single-tier and double-tier board structures. The concept of asymmetric CoVaR (Conditional Value at Risk) was used as a key tool to illustrate how the level of systemic risk varies with the size and complexity of banks, which in turn influences the training requirements.

Main Views and Key Points

Proportionality in Training

• The principle of proportionality is enshrined in Article 5(4) of the Treaty on European Union, stating that Union actions should not exceed what is necessary to achieve their objectives.
• In the context of CRD IV (Capital Requirements Directive IV), Article 74 emphasizes that the arrangements, processes, and mechanisms for management bodies must be comprehensive and proportionate to the nature, scale, and complexity of the institution's risks.
• EBA Guidelines on Internal Governance (GL 44) indicate that training needs and knowledge profiles vary depending on the size and complexity of the institution. The responsibility for defining these lies with the institutions themselves.
• Training is a mitigating measure that can help reduce the probability of failure and its associated costs.

Asymmetric CoVaR Methodology

• Largest US banks (Top Quartile) contribute significantly to systemic risk during negative shocks, requiring higher levels of training, supervisory reporting, and risk monitoring.
• Smallest US banks (Bottom Quartile) only contribute to systemic risk under large negative shocks, hence lower training requirements.
• The asymmetric nature of the banking industry, particularly in terms of comovements during downside periods, is an important aspect that should be included in training for non-industry-experienced members.

Diversity and Independence of Mind

• Article 91 of CRD IV mandates that management bodies should include a broad set of qualities and competences, promoting diversity in terms of age, gender, geographical origin, and professional background.
• Lack of diversity can lead to groupthink, which reduces the independence of mind and critical challenge in decision-making.
• Training plays a key role in enhancing independence of mind, especially in diverse management bodies.

Supervisory Function and Training

• Supervisory training for independent members of a 1-tier board should be similar to that of management bodies in a 2-tier board.
• Key areas of training include:
  • Strategy and business model
  • Risk exposures and risk appetite framework
  • Business continuity and recovery plans
  • Resolution planning
  • Financial information accuracy
  • Remuneration policy

Global Training

• Global training covers a wide range of topics, including:
  • Ethics
  • New regulatory and supervisory frameworks
  • Risks (credit, liquidity, market, interest rate, exchange rate, reputational, cyber)
  • Basel III (Pillar I, II, and III)
  • MREL/TLAC (Minimum Requirement for Own Funds and Eligible Liabilities)
  • Anti-Money Laundering (AML)
• Induction training is aimed at filling knowledge gaps for new members, especially those without prior banking experience.
• Ongoing training is necessary to address new knowledge gaps due to:
  • Updates in recovery, resolution, and capital requirements
  • Changes in financial regulation
  • Economic and financial developments
  • Risk outlook changes
  • Remuneration policy changes
  • Supervision requirements

Conclusion

• Proportionality must be applied within banking groups, with larger banks requiring more extensive training.
• Training is essential for both induction and ongoing development to ensure competence, independence of mind, and systemic risk mitigation.
• The asymmetric CoVaR methodology underscores the need for tailored training based on the size and complexity of the institution.
• Diversity in management bodies is a key factor in fostering critical thinking and effective governance, supported by adequate training.