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EAPB Comments on CEBS' Consultation Paper on Technical Advice on Options and National Discretions

Core Content

The European Association of Public Banks (EAPB) has submitted comments on the CEBS consultation paper regarding the technical advice on national options and discretions in the Capital Requirements Directive (CRD). The EAPB, representing 29 public banks and financial institutions across Europe with a combined balance sheet of about EUR 3,500 billion and 190,000 employees, emphasizes the importance of reducing national discretions to enhance supervisory convergence.

Main Views

• Acknowledgment of CEBS' efforts: The EAPB appreciates CEBS' initiative to reduce national discretions and increase convergence. They also value the involvement of the industry in the discussions and the consultation process.

• Joint Assessment Process: The EAPB supports the proposed use of joint assessments to improve cooperation between European supervisors and promote convergence. They suggest that joint assessments could be applied in additional areas, such as the categorisation of central counterparties and the treatment of regional governments by supervisors.

• Binding Mutual Recognition: Where national discretions are based on local market conditions, the EAPB advocates for binding mutual recognition to prevent competitive distortion. They believe that this should be the standard approach, with supervisors working together to bridge information gaps through enhanced communication and cooperation.

• Supervisory Decisions: The EAPB is concerned that the rationale for converting national discretions into supervisory decisions is not sufficiently clear. They suggest that such provisions should be available to all European banks meeting objective criteria, with national supervisors verifying compliance on a case-by-case basis.

Key Information

National Discretions and Options Analyzed

• ND 22 – Standardised Approach (Art 83.2): The EAPB recommends that the quality of unsolicited ratings be subject to joint assessment, similar to the procedure for ECAIs. This should be binding on all national supervisors.

• ND 33 – Standardised Approach (Annex VI, Part 1, point 67): The EAPB believes that this discretion should not be deleted, as it allows for reduced risk weights on high-risk non-past due exposures with value adjustments, which effectively lowers the risk of the exposure. They advocate for binding mutual recognition.

• ND 34 – Standardised Approach (Annex VI, Part 1, point 68 (e)): The EAPB does not support raising the loan-to-value ratio for commercial property from 60% to 70%, as most member states do not use this discretion. They suggest that it should be dropped to avoid competitive distortion.

• ND 43 – IRB (Annex VII, Part 2, point 15): The EAPB strongly recommends retaining this discretion, as its deletion could have unforeseeable consequences for the long-term funding of SMEs in Europe. They note that this discretion is part of the "SME compromise" agreed by the Basel Committee in 2002, and its removal could have serious political implications and hinder further convergence of supervisory law.

Conclusion

The EAPB's comments highlight the need for a balanced approach in reducing national discretions while ensuring that supervisory practices remain consistent and effective across the EU. They emphasize the importance of cooperation, communication, and binding mutual recognition to maintain fair competition and support the financial sector's stability.