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EBIC Summary of Comments on CEBS' Consultation on Options and National Discretions in the CRD

Core Content Overview

The European Banking Industry Committee (EBIC) has provided detailed feedback on the European Banking Authority's (CEBS) consultation regarding the treatment of options and national discretions in the Capital Requirements Directive (CRD). EBIC, representing various banking associations across Europe, has expressed both appreciation and concerns regarding CEBS' approach and recommendations.

Main Views and Key Points

1. Importance of National Discretions

• EBIC acknowledges the importance of national discretions but highlights the risks of level playing field distortions and administrative burdens due to differing rules across jurisdictions.
• The industry supports the idea that some discretions should be removed when the criteria are sufficiently clear.
• CEBS is urged to consider the industry's perspective on the impact of these discretions, particularly in relation to Pillar 2 and Pillar 3 of the Basel Accord.

2. Critique of Impact Assessment Approach

• EBIC finds CEBS' impact assessment analysis too general and lacks a systematic, industry-focused approach.
• The expert group was not involved in the impact assessment, which EBIC considers inadequate.
• EBIC believes that impact assessments should include both direct and indirect costs and benefits, not just supervisory concerns about financial stability.

3. Support for Convergence and Transparency

• EBIC welcomes CEBS' efforts to increase cooperation and convergence among supervisory authorities.
• There is a call for joint assessment processes to result in joint decisions, rather than individual ones.
• Transparency in supervisory decisions is emphasized, particularly through the supervisory disclosure framework.

4. Discretion in Own Funds

• ND 1 (Article 57): EBIC agrees that no separate supervisory choice is needed, as criteria are clear. This discretion should be removed.
• ND 2 (Article 58): This is a limited case, but criteria are clear. EBIC suggests turning it into a general rule.
• ND 3 (Article 59): EBIC supports alignment with FCD, but believes the current wording is problematic. Institutions should be allowed to choose the appropriate method.
• ND 4 (Article 60): EBIC disagrees with deferring the decision and believes the provision should be applied by institutions, not supervisors.
• ND 5 (Articles 61, 63.1, 64.3, 65): Divergent treatment across institutions is harmful. EBIC advocates for consistent application within groups.
• ND 6 (Article 13.2): Divergent treatment is too significant; the provision should be an option for institutions.
• ND 7 (Article 13.5): EBIC agrees with CEBS' new wording.
• ND 8 (Article 14): The provision should be turned into an option for institutions, subject to supervisory review.

5. Scope of Application

• ND 12 (Article 72.3): Pillar 3 disclosure at consolidated level should be a general rule, not a discretion.
• ND 13 (Article 73.1): The Member State discretion should be turned into an institution-level option, reviewed by supervisors.

6. Counterparty Risk in Derivatives

• ND 16 (Annex III, Part 6, Point 7): This discretion should be deleted as it is part of the model approval process.
• ND 17 (Annex III, Part 6, Point 12): The wording is redundant. Institutions using the Internal Models Method should be allowed to use their own estimates of α, subject to a floor of 1.2.
• ND 18 (Annex III, Part 7c (ii)): CEBS' approach to increasing conservatism is not aligned with the risk-sensitive principles of Basel II. The discretion should be removed.

7. Standardised Approach

• ND 20 & 21 (Article 80.7 & 80.8): These provisions should be turned into general rules if criteria are clear.
• ND 23 (Annex VI, Part 1, Point 5): Joint assessment processes are encouraged, but must result in joint decisions.
• ND 24 (Annex VI, Part 1, Point 11): Recognition of third country public sector entities should be subject to a joint process and a full list published.
• ND 25 (Annex VI, Part 1, Point 14): Institutions should be informed of all recognized PSEs. Criteria should be consistent across jurisdictions.
• ND 26 (Annex VI, Part 1, Point 15): Same as ND 25.
• ND 27 (Annex VI, Part 1, Point 17): Same as ND 23 and ND 24. Full list of recognized entities should be published.
• ND 28 (Annex VI, Part 1, Point 37): Deletion of this discretion is supported, as it is already implemented in most Member States.
• ND 29 (Annex VI, Part 1, Point 40): This discretion should be turned into a general rule based on clear criteria.
• ND 30 (Annex VI, Part 1, Point 63): EBIC supports the deletion of this provision after a transition period.
• ND 31 (Annex VI, Part 1, Point 64): This provision should be retained as a general rule due to its risk-mitigating effect.
• ND 32 (Annex VI, Part 1, Point 66): Divergent application is harmful; the discretion should be deleted.
• ND 35 (Annex VI, Part 1, Point 85): EBIC supports the full deletion of this provision.
• ND 36 (Annex VI, Part 1, Point 66): Same as ND 32.
• ND 37 (IRB, Article 84.2): This discretion should be removed as the criteria are clear and objective.
• ND 38 (IRB, Annex VII, Part 1, Point 6): EBIC supports the idea of preferential risk weights but suggests clearer wording and common criteria.
• ND 39 (IRB, Annex VII, Part 1, Point 13): This provision should be applied as a general rule where collateralised credit facilities are linked to wage accounts.
• ND 40 (IRB, Annex VII, Part 1, Point 18): Discretionary part should be deleted.
• ND 41 (IRB, Annex VII, Part 2, Point 5 & 7 and Annex VIII, Part 1, Point 26): EBIC urges for binding mutual recognition rather than deletion due to lack of impact data.
• ND 45 (IRB, Annex VII, Part 2, Point 20 & Annex VIII, Part 1, Point 26): Same as ND 41.
• ND 46 (IRB, Annex VII, Part 4, Point 56): Supervisory approval of adjustments is implicit in the "demonstrate" requirement. Flexibility should be automatic if criteria are met.

Conclusion

EBIC appreciates CEBS' efforts to improve the CRD through better clarity and cooperation, but remains critical of the lack of a comprehensive impact assessment and the tendency to retain some discretions where criteria are clear. EBIC emphasizes the need for consistency, transparency, and the elimination of unnecessary national discretions to ensure a fair and effective regulatory environment.