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CEBS Consultation Paper on Draft Guidelines for Cross-Border Group Capital Assessment (CP39) - Summary

Core Content

This document presents the feedback from the Danish Bankers' Association, Federation of Finnish Financial Services, Finance Norway, and the Swedish Bankers' Association on the CEBS consultation paper (CP39) regarding the joint assessment of the supervisory review and evaluation process (SREP) and the joint decision on capital adequacy for cross-border banking groups. The feedback is aligned with the EBF position paper and highlights both support and concerns regarding the proposed guidelines.

Main Views

Support for the Initiative

• The associations fully support the EBF position paper and the general objective of improving the cross-border capital assessment process.
• They agree with certain aspects of CP39, particularly the idea of combining issues and identifying key group-wide issues.

Concerns and Suggestions

1. Need for a More Structured Cross-Border Process

   • The current process is criticized for local regulators ring-fencing banks within their jurisdictions, which may not reflect the true group-wide risk.
   • A more structured and integrated approach is needed to ensure a comprehensive assessment of the entire group.

2. Importance of Convergence Across Supervisory Colleges

   • The associations emphasize the need for convergence in ICAAP/SREP processes across supervisory colleges.
   • They argue that convergence at the group level is essential to ensure a level playing field in both the process and the outcomes (e.g., capital estimates).
   • Differences in national methodologies and Risk Assessment Systems (RAS) could lead to inconsistencies and inefficiencies.

3. Criticism of the Draft Guidelines' Detail and Structure

   • The associations believe that the draft guidelines are too detailed, leading to a "tick-box exercise" rather than a substantive risk assessment.
   • There is a risk that supervisors will focus on form rather than substance, potentially missing the actual risk picture.

4. Preference for a Top-Down Approach

   • A top-down approach is recommended for assessing capital, stress testing, risk management, and control.
   • This approach would allow more efficient capital allocation and better management of group-wide risks.
   • A bottom-up approach is seen as inefficient, leading to redundant documentation and reporting efforts.

5. Concerns About the Focus on Host Supervisors

   • The current draft emphasizes the role of host supervisors, while consolidating supervisors are treated as mere secretaries.
   • This could undermine the role of consolidating supervisors in providing a holistic view of the group's risk and capital needs.

6. Suggestion for a Revised Bottom-Up Approach

   • If a bottom-up approach is necessary, it should be based on country-level SREPs, not on each legal entity.
   • This would reduce the workload and avoid unnecessary duplication, thereby improving efficiency.

Key Information

• Participants: Danish Bankers' Association, Federation of Finnish Financial Services, Finance Norway, Swedish Bankers' Association.
• Main Objective: Improve the joint assessment and decision-making process for cross-border banking groups.
• Preferred Method: A top-down approach to group-wide risk and capital assessment.
• Criticism of Current Draft: Too detailed, risk of "tick-box" exercise, insufficient focus on group-wide convergence.
• Recommendation: Focus on group-level risk assessment and capital requirements, not individual entities.

Conclusion

The feedback underscores the importance of a holistic, group-wide perspective in assessing capital adequacy for cross-border banking groups. It advocates for convergence across supervisory colleges, efficiency in the assessment process, and a top-down approach to ensure that regulatory efforts align with actual risk management needs. The associations also stress the need for a balanced role between host and consolidating supervisors in the process.