EBA欧洲银行-BSG-response-to-Consultation-Paper-28EBA-CP-2015-15292022-January-2016_10页_440kb

EBA Banking Stakeholder Group Summary on Consultation Paper EBA/CP/2015/15

Core Content

The EBA Banking Stakeholder Group (BSG) has provided detailed comments and replies to the Consultation Paper EBA/CP/2015/15, which outlines proposed guidelines on the application of the definition of default under Article 178 of Regulation (EU) 575/2013 (CRR). The BSG supports the initiative to harmonize supervisory rules and practices across Europe, aiming to ensure fair competition and operational efficiency for cross-border banking groups.

Main Views and Key Information

General Comments

• Harmonization: The BSG supports the harmonization of default definitions to reduce discrepancies in RWA calculations and align with global initiatives.
• Flexibility: They emphasize the importance of maintaining flexibility for expert judgment in defining default, especially for non-retail activities.
• Alignment with IFRS 9: The BSG stresses the need for consistency between the proposed guidelines and IFRS 9 definitions, to avoid undue complexity and improve comparability.
• Implementation Time: They suggest that at least 2-3 years are needed to implement the new definition of default, including time for competent authorities to assess material changes and for banks to obtain supervisory approval.
• Operational Burden: The BSG is concerned about the operational burden and potential volatility of daily basis counting of past due days, particularly for factoring and other trade finance activities.

Replies to Questions

1. Technical Defaults Definition

   • The BSG considers the current definition too restrictive.
   • They suggest including situations like commercial litigation, administrative delays, logistical issues, collateral disputes, sovereign defaults, and force majeure.
   • They are concerned about excluding technical defaults caused by counterparty errors and the impact on credit risk modeling and large exposure reporting.

2. Treatment of Factoring Arrangements

   • The BSG appreciates the EBA's recognition of the specificity of the factoring business.

3. Specific Credit Risk Adjustments

   • The BSG supports the anticipation of IFRS 9 and aligning with the accounting framework.
   • They recommend clarifying the probation period for exposures with incurred partial losses.

4. Sale of Credit Obligations

   • The BSG believes the proposed 5% threshold is too low and recommends increasing it to at least 10%.
   • They suggest incorporating expert judgment and combining it with other indicators.

5. Discounting Cash Flows

   • The BSG agrees that cash flows should be discounted using the original effective interest rate.
   • They are skeptical of the 1% NPV decline threshold, suggesting it should be higher to align with the materiality criterion.

6. Material Discount as Default Indicator

   • The BSG disagrees that a material discount should always be treated as an indication of unlikelihood to pay.
   • They argue that discounts can result from various factors, not just credit risk, and should not trigger default automatically.

7. Probation Periods

   • The BSG does not support fixed probation periods for different exposure classes.
   • They suggest that the recognition of a customer returning to non-default status should be at the discretion of each institution.

8. Retail Exposures

   • The BSG agrees with the proposed approach for retail exposures.

9. Pulling Effect for Retail Exposures

   • The BSG does not support introducing a pulling effect for retail exposures.
   • They suggest that institutions should either demonstrate no impact on other facilities or model the pulling effect as an explanatory variable.

10. Materiality Threshold for Joint Credit Obligations

    • The BSG believes a mechanical and automatic process should be supplemented with expert judgment.
    • They highlight potential competition issues between Member States regarding the materiality threshold.

11. Internal Governance for IRB Approach

    • The BSG agrees with the proposed requirements.
    • They emphasize the need to ensure no contradiction with IFRS 9 guidelines on credit risk management.

Conclusion

The BSG advocates for a balanced approach that ensures consistency with global standards while allowing flexibility for expert judgment. They highlight the operational and modeling challenges associated with the proposed changes and stress the importance of adequate time for implementation and alignment with other regulatory frameworks such as IFRS 9.