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CECA Response to CEBS Consultation Paper (CP16): Summary

Core Content

CECA, the Spanish Confederation of Savings Banks, represents 45 Spanish Savings Banks, which are significant players in the Spanish financial system. In 2007, these banks had total assets of €1.1 billion, 24,050 branches, and 124,139 employees. As credit institutions with foundational origins, they aim to provide universal financial services, promote economic efficiency, avoid monopolistic practices, contribute to welfare and redistribution, and support regional and community development. Their surplus is directed toward social projects under the "Obra Social" scheme.

CECA supports the European Commission's initiative to harmonize large exposures regulations, as it reduces disparities among national legislations and ensures a level playing field. However, they emphasize the need for consistency with existing regulations, particularly in relation to own funds requirements.

Main Objectives and Views

Definition of Large Exposures

• Control Relationship: CECA agrees with the CEBS definition and notes that Spanish institutions already identify such relationships efficiently.
• Interconnectedness: They support the concept but argue that the proposed framework could be overly complex and costly, as it would require institutions to routinely assess client interconnectedness.
• Proposal for Simplification: CECA suggests that a principles-based approach, rather than a detailed framework, would be more practical. They recommend eliminating the Annex 3 example due to its ambiguity and complexity.

Exposure Value Calculation

• Gross vs. Net: CECA prefers gross exposure values for on-balance sheet items, except for assets held for sale with capital surplus, where surpluses should not be included if not eligible as own funds.
• Alignment with CCF: They advocate for a perfect alignment between the conversion factors used in the Capital Requirements Directive (CRD) and those in the large exposures regime. This is to ensure consistency and avoid overestimation of risks.

Credit Risk Mitigation

• Different Treatment from Capital Rules: CECA disagrees with CEBS on allowing different treatment of mitigation techniques for large exposures. They believe it should align with the minimum capital requirements framework to avoid disproportionate costs.
• Collateral Eligibility: They support the inclusion of residential and commercial real estate as eligible collateral for large exposures, arguing that the current rules are more relevant than the minimum capital rules. They also suggest that physical collateral should be eligible if liquid markets are available.

Trading Book vs. Banking Book

• Different Rules Needed: CECA believes that separate rules for trading and banking books are necessary due to the differing nature of risks. They argue that the large exposures regime is not the right place to address liquidity concerns of the trading book.

Intra-group Exposures

• No Need for Limits: CECA does not support imposing limits on own funds for intra-group exposures, as supervisory authorities already have mechanisms to monitor such risks. They warn that such limits could hinder liquidity management and strategic decisions.

Sovereign and Public Sector Exposures

• Harmonized Treatment: CECA supports the removal of national discretion and the automatic exemption of exposures to sovereigns, international organizations, and some public sector entities. They consider these events exceptional and not within the scope of normal regulatory frameworks.

Interbank Exposures

• Exemption for Short-Term: CECA proposes that interbank exposures not representing long-term financing should be exempt from the large exposures regime. They argue that such exposures are short-term and less likely to result in unforeseen events.

Breach of Limits

• Harmonized Limit: CECA supports a harmonized maximum limit for large exposures and suggests a transitory regime (grandfathering) for certain cases, such as new control relationships or affiliations with financial groups.
• Compliance Schedule: They recommend that entities agree with supervisors on a schedule to bring exposures into compliance, including maturity plans, recovery plans, and renewal policies. They oppose the deduction of entire exposures or from own funds, as it would be disproportionate.

Reporting Issues

• Supervisory Reporting: CECA supports immediate indication of breaches in supervisory reporting but cautions against adopting overly detailed templates like COREP. They advocate for a simple reporting format.
• Pillar III Reporting: They oppose Pillar III reporting due to confidentiality concerns and the lack of market capacity to control compliance.
• Common Reporting Templates: CECA supports the use of predefined templates by supervisors for consistency and efficiency. They suggest that reporting should be limited to exposures above 10% of own funds and include information on mitigation techniques rather than detailed exposure breakdowns.
• Indirect Exposures: Reporting should only occur when the guarantee supplier is also a large exposure. Interbank and intra-group exposures should not be reported due to administrative burden.

Credit Risk Management

• Good Credit Management: CECA agrees with CEBS that good credit management should be recognized but warns against introducing unnecessary complexity. They believe that a limit-based backstop regime does not justify exemptions for advanced institutions.

Conclusion

CECA emphasizes the importance of a simple, harmonized, and consistent large exposures framework. They support the removal of national discretion in certain areas, the use of common reporting templates, and the alignment of credit risk mitigation techniques with existing capital requirements. Their main concern is the practical implementation costs and the need for a principles-based approach to interconnectedness and exposure assessment.