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CEBS Consultation Paper on Revised Large Exposures Regime - Summary

Core Content

This document represents the position of the Bank and Insurance Division of the Austrian Federal Economic Chamber, representing the entire Austrian banking industry, in response to CEBS's consultation paper on the revised large exposures regime. The comments focus on several key areas: the concept of control, economic interconnectedness, treatment of exposures to schemes with underlying assets, and reporting requirements.

Main Comments and Views

III. Connected Clients

• Control Concept: The concept of control is clear, but the administrative burden of gathering information on control, especially beyond majority ownership, is significant. Clients are not legally required to provide detailed indicators on control.
• Grouping Rules: The current Austrian provisions for grouping connected clients do not apply to exposures to central and regional states if the risk weights do not exceed 100%, which contrasts with CEBS's recommendation of 0%.
• Economic Interconnectedness: The concept is clear, but the collection of required information is burdensome. There is a need for clarification that only the economically dependent client, not the entire group, should be linked to the client on whom it depends.
• Main Source of Funding: The illustrative case in No. 55 is clear, but the application of the concept of connection through a main source of funding is limited to SPV/circuit structures. The authors believe that the last sentence in No. 54 is not logical and could undermine the concept.
• Threshold for Grouping: The division supports a higher threshold for grouping connected clients, such as 5% of own funds at a solo or consolidated level.
• CEBS Interpretation in No. 32: The interpretation that includes cases where the main source of funding lies outside the reporting institution is criticized. It is recommended that the reporting institution's view (on a solo or (sub)-consolidated basis) should be decisive in forming and reporting groups.

IV. Treatment of Exposures to Schemes with Underlying Assets

• Flexibility vs. Standardization: While the proposed approaches provide flexibility, they cannot be applied in a standardized manner.
• Fall-back Solutions: Fall-back solutions b) and d) are not appropriate as they assume all unknown exposures are related to one entity, which is a highly unrealistic scenario.
• Mandate-based Approach: The mandate-based approach is not feasible for full-service banks due to potential unknown exposures. It should be retained for specialized banks and allow exclusion of schemes from the group of unknown exposures if the maximum investment under the mandate does not exceed 0.1% of own funds.
• Tranches and Securitisation: Reporting every tranche is unduly burdensome. The proposed treatment in para 89 is sufficient.
• Exclusion of Schemes: A scheme can be excluded from the large exposure regime if the only risk arises from the underlying credit exposures within the scheme.

V. Reporting Requirements

• Column 8 (Indirect Exposures): It is correct to report exposures to Bank B arising from the underlying of a CLN in column 8.
• Template Approach: The division prefers the 2-Template-Approach for reporting.
• CRM Reporting: They agree with the proposed reporting of CRM and do not require further differentiation.
• Detailed Information Burden: Providing more detailed information, such as the total amount of collateral available, is considered too burdensome for the industry.
• Amendment to Para 108: The current wording implies that all members of a group exceeding the 10% limit must be reported, which conflicts with the treatment of groups as single clients in para 138. It should be amended to include only exposures exceeding the 10% limit, not the entire group.
• Example for Identification: The example in the consultation paper is misleading. If two members of a group exceed the 10% limit, the group should be treated as a single client, resulting in only 4 large exposures (3 clients and 1 group), not 5.
• International Identification System: The division suggests the introduction of an international identification system to help cross-border banks identify clients consistently, as national practices may lead to inconsistencies due to frequent changes in client names and addresses.
• COREP References: The references to COREP are considered sufficient.

Key Recommendations

• Clarify that only the economically dependent client, not the entire group, should be linked to the client on whom it depends.
• Amend the wording in para 108 to avoid excessive reporting requirements.
• Retain the mandate-based approach for specialized banks and allow exclusion of schemes under certain conditions.
• Introduce an international identification system for cross-border banks.
• Correct the example in the consultation paper to reflect the correct treatment of groups as single clients.