EBA欧洲银行-Public-HearingShadow-banking18-May-2015_12页_467kb

EBA Draft Guidelines on Limits on Exposures to Shadow Banking Entities

Core Content

The European Banking Authority (EBA) has initiated a public consultation on draft guidelines aimed at setting limits on exposures to shadow banking entities. These guidelines are developed under Article 395(2) of the Capital Requirements Regulation (CRR) and are intended to inform the European Commission's report on the appropriateness and impact of imposing such limits.

Main Objectives

The primary objectives of the draft guidelines are to:

• Define 'shadow banking entities' and establish the scope of the guidelines
• Develop effective processes and control mechanisms for managing exposure risks
• Establish appropriate oversight arrangements
• Set aggregate and individual limits on exposures
• Provide a fallback approach for institutions unable to apply the principal methodology

Key Definitions and Scope

Shadow Banking Entities

• Definition: A hybrid approach is used to define shadow banking entities. They must:

  • Carry out one or more credit intermediation activities
  • Not be excluded undertakings

• Credit Intermediation Activities: Include maturity transformation, liquidity transformation, leverage, credit risk transfer, and similar activities.

• Excluded Undertakings: Include:

  • Entities included in consolidated supervision
  • Entities supervised on a consolidated basis by third country competent authorities with equivalent prudential frameworks
  • Entities subject to appropriate and robust prudential frameworks (e.g., credit institutions, investment firms, insurers)
  • Entities within the scope of Article 2(5) and 9(2) of CRD (e.g., post office giro institutions)

Funds

• Funds are generally considered part of the shadow banking sector due to maturity and liquidity transformation activities.
• All funds except non-MMF UCITS (and non-MMF funds with equivalent third country prudential frameworks) are included in the definition of shadow banking entities.

Requirements for Institutions

Institutions are required to:

• Identify exposures to shadow banking entities and associated risks
• Implement a framework for managing, controlling, and mitigating these risks
• Consider these risks in their ICAAP (Internal Capital Adequacy Assessment Process) and capital planning
• Develop robust processes to assess interconnectedness
• Establish effective reporting procedures to the management body
• Implement action plans to address breaches of limits

The management body must also:

• Review and approve the institution's risk appetite towards shadow banking entities
• Approve the risk management process
• Ensure the relative importance of these exposures is understood
• Ensure limits are set and documented

Limit Setting Approaches

Principal Approach

• Institutions should set an aggregate limit on exposures to shadow banking entities, expressed as a percentage of eligible capital

• Considerations include:

  • Business model
  • Risk management framework
  • Risk appetite
  • Relative importance of exposures
  • Interconnectedness

• Additional individual limits may be set based on:

  • Whether the entity is subject to prudential requirements or supervision
  • Financial situation
  • Portfolio and vulnerabilities
  • Interconnectedness

Fallback Approach

• If the principal approach cannot be applied due to insufficient information or lack of effective processes, a 25% limit on aggregate exposures to shadow banking entities may be applied.
• Two options are under consultation:
  • Option 1: Apply the 25% limit to all exposures to shadow banking entities
  • Option 2: Apply the 25% limit only to those entities where the institution cannot apply the principal criteria, and apply the principal approach to the rest

Next Steps

• The EBA will process public feedback and finalize the guidelines by year-end
• Guidelines will apply a number of months after translation into all EU languages
• Institutions must comply with the guidelines
• Competent authorities will implement the guidelines in their supervisory processes and legal frameworks

Additional Activities

• The EBA is coordinating a data collection exercise on institutions' exposures to shadow banking entities to support the Commission's report on the appropriateness and impact of imposing limits on such exposures.