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CEBS Contribution to the Lamfalussy Review Summary

Core Content

The European Banking Authority (EBA) Committee for European Banking Supervision (CEBS) has made significant progress in advancing supervisory convergence and cooperation within the EU banking sector under the Lamfalussy framework. CEBS believes that the current framework can and should be further developed to ensure more consistent practices and better support for cross-border business in the Single Market. While the framework has already achieved notable results, there are still areas that require improvement.

Main Pressure Points

CEBS identifies two key pressure points in the implementation of the Lamfalussy arrangements:

1. Convergence in Day-to-Day Supervisory Practices

   • The actual impact of CEBS work on national supervisory practices is still perceived as limited.
   • National legislation and supervisory traditions, which reflect long-standing differences in banking and financial markets, pose significant constraints.
   • Regulatory differences may also stem from variations in company law and tax regimes, further complicating convergence efforts.

2. Prudential Supervision of Cross-Border Groups

   • Supervisors face challenges in aligning with the increasingly integrated risk management practices of cross-border banking groups.
   • The distinction between branches and subsidiaries is becoming less clear, raising concerns about the effectiveness and efficiency of supervisory arrangements.
   • The current legal framework, including the Capital Requirements Directive (CRD), does not fully support a unified supervisory process for cross-border groups.

Key Proposals for Improvement

To address these pressure points and enhance supervisory convergence and cooperation, CEBS proposes the following:

1. Regulatory Convergence

• Phasing out of options and national discretions: A strong political commitment to limit the use of such tools and introduce sunset clauses for reconsideration after a limited period (e.g., 3 years).
• Proper implementation of the Lamfalussy structure in banking: Clearer distinction between Level 1 and Level 2 regulations and more structured approaches to policy and technical rules.
• Own initiative advice: CEBS should identify regulatory obstacles to convergence and provide structured recommendations to the Commission.
• Enhanced efforts at Level 4: Ensuring consistent enforcement of EU law across Member States to support regulatory convergence.

2. Supervisory Convergence

CEBS proposes a more precise definition of convergence, distinguishing between three types:

• Convergence in principles: Based on guidelines that allow national flexibility, supporting a level playing field.
• Group-specific convergence: Aimed at ensuring consistency and risk-based supervision of cross-border groups while respecting national practices.
• Hard convergence: Focused on achieving country-neutral outcomes, particularly in areas such as supervisory reporting formats.

CEBS suggests the following improvements to achieve supervisory convergence:

• Clear ex-ante definition and ex-post assessment of convergence targets: To promote a common understanding of objectives and outcomes.
• Development of new practical convergence tools: Including common expert teams, web-based facilities, and joint assessment teams.
• Pursuance of hard convergence in specific areas: Such as reporting standards, to support a unified supervisory approach.

Supervisory Cooperation

CEBS also emphasizes the need for stronger supervisory cooperation, particularly through:

• Operational networking: A pilot project is underway to improve coordination between consolidating and host supervisors. More specific proposals are expected by the end of 2007.
• Multilateral cooperation and information exchange: Building on past experiences, especially during the US subprime crisis, to enhance collaboration and trust among supervisory authorities.
• Crisis management: Further development of operational networks to include relevant authorities and practical tools for managing cross-border crises.

Mandate and Status of CEBS

CEBS suggests that its mandate and status should be reinforced to better support its role in fostering convergence and cooperation:

• A reinforced mission statement, endorsed by all EU institutions, would provide a clearer basis for its work.
• Explicit reference to CEBS in Community legislation is needed to reflect its high responsibility.
• Accountability should be formally extended to all EU institutions, while maintaining operational independence.
• CEBS activities could be financed from the EU budget, but only for specific projects mandated by legislation or recommendations from EU institutions.

Conclusion

CEBS has made substantial progress in promoting supervisory convergence and cooperation within the EU banking sector. However, to achieve more consistent practices and better support for cross-border operations, it is essential to refine the concept of convergence, improve regulatory alignment, and strengthen cooperation mechanisms. These efforts will be crucial in ensuring the effectiveness of the Lamfalussy framework and meeting the evolving expectations of market participants and EU institutions.