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BSG Meeting Summary - 6 March 2014

Core Content

The Banking Stakeholder Group (BSG) meeting on 6 March 2014 in London focused on several key regulatory and supervisory developments within the European banking sector. The meeting covered updates on the EBA's work, the Single Resolution Mechanism (SRM), stress testing, risk assessment, and the role of BSG in shaping regulatory standards. The BSG also discussed the composition of its members and the coordination of workstreams across various technical working groups.

Main Views and Key Information

1. Welcome and Agenda Approval

• The BSG and EBA Chairpersons welcomed attendees, including the EU Commission representative.
• Changes in BSG membership were noted:
  • Louise Lindgren moved from Nordea Bank to LF Bank but wished to remain a BSG member.
  • Andrew Procter left Deutsche Bank to join a law firm and would no longer be a BSG member.

2. Update on EBA and SRM Developments

• The BSG Chairperson updated the group on the EBA's recent submissions to the EBA Consultation Papers (CPs).
• The Single Resolution Mechanism (SRM) was discussed:
  • It builds on the Bank Recovery and Resolution Directive (BRRD).
  • The SRM applies to all banks under the Single Supervisory Mechanism (SSM).
  • The European Commission's proposals for SRM go further than the Financial Stability Board's Key Attributes, due to the complexity of EU and Eurozone inter-linkages.
• The EBA proposed a tri-partition of BSG membership, with a preference for including employee representatives.
• The EBA had sent a letter to the Commission in November 2013 regarding the Review of the European System of Financial Supervision (ESFS), and intended to include its comments in the response to the Ombudsman.

3. EU-wide Stress Test Update

• The EBA is responsible for initiating and coordinating the 2014 EU-wide stress test, with a focus on assessing financial institutions' resilience to adverse market conditions.
• The stress test will use new hurdle rates:
  • 8% CET1 ratio for the baseline scenario.
  • 5.5% CET1 ratio for the adverse scenario.
• The test will use static balance sheet assumptions, but competent authorities may analyze banks' response functions.
• The EBA will provide a common methodology and templates, and the ESRB will provide the scenario.
• The Asset Quality Review (AQR) results will be published by the ECB in October, with exceptions for major shortfalls.
• BSG Members raised concerns about provisions, prudential filters, and the lack of conduct risk in the stress test framework.

4. EBA Risk Assessment Report

• The EBA will publish a risk report covering:
  • Capital evolution, profitability, deleveraging, asset quality, emerging market risks, mortgages, and IT/cyber and conduct risks.
• Capital levels have improved, but mainly due to RWA reductions, dividend pay-outs, and capital issuances.
• Deleveraging is at different stages across the EU, with Spain showing signs of credit growth resuming.
• Emerging market risks are currently seen as manageable, but high LTVs and interest-only loans are of concern.
• The EBA is working on benchmarking exercises and guidance for various credit risk topics, including risk weights, default definitions, and low default portfolios.

5. BSG Workstreams and Technical Working Groups

• The BSG discussed the allocation of workstreams for upcoming EBA Consultation Papers:
  • EBA/CP/2013/45: Credit risk transfer for securitisation transactions (led by Santiago Fernandez de Lis).
  • EBA/CP/2013/48: Guidelines on disclosure of encumbered and unencumbered assets (led by Marco Mazzucchelli).
  • EBA/CP/2013/46: Professional Indemnity Insurance for mortgage intermediaries (led by Alin Iacob).
  • EBA/CP/2013/47: Harmonised definitions and templates for funding of credit institutions (led by Sandra Hafner).
  • EBA/DP/2014/01: Volatility of Own Funds and revised IAS 19 (led by José Antonio Gonzalo-Angulo).
• The BSG tentatively agreed not to submit opinions on EBA/CP/2014/01 and JC/CP/2014/01.
• A new Ad hoc Working Group on the Proportionality Principle was established, led by Chris De Noose, to support the EBA's work on proportionality.

6. Consumer Issues and Financial Innovation

• The BSG decided to develop an opinion on Professional Indemnity Insurance (PII) for mortgage credit intermediaries.
• The EBA had published a Consumer Trends Report, with input from the BSG.
• BSG Members suggested further discussion on conduct risk indicators and were reminded of the Joint Consumer Protection Day on 4 June.

7. Next Meetings

• The BSG was reminded of upcoming meetings on 12–13 May 2014, including a Joint BSG/BoS meeting.
• BSG Members were asked to consider possible topics for discussion with the BoS and to provide input in due time.

8. Other Business

• There was no other business (AOB) to be discussed.

Key Participants

• BSG Members: David T. Llewellyn (Chairperson), Jean Berthon, Michel Bilger, Javier Contreras, Nikolaos Daskalakis, Chris De Noose, Santiago Fernandez De Lis, Eilis Ferran, Jose Antonio Gonzalo-Angulo, Sandra Hafner, Troels Holmberg, Zdenek Hustak, Alin Iacob, Robin Jarvis, Bostjan Krisper, Nina Dietz Legend, Louise Lindgren, Dominic Lindley, Marco Mazzucchelli, Ute Meyenberg, Jesper Bo Nielsen, Holger Schwannecke, Magdolna Szőke.
• Representatives:
  • European Commission: Mario Nava.
  • EBA: Andrea Enria, Adam Farkas, Philippe Allard, Stefan Andresen, Dirk Haubrich, Lampros Kalyvas, Corinne Kaufman, Lars Overby, Mario Quagliariello.
• Other stakeholders:
  • Top-ranking academics
  • Consumers
  • Credit and investment institutions
  • SMEs
  • Employees
  • Users of banking services

Conclusion

The meeting underscored the EBA's increasing role in shaping regulatory frameworks and its coordination with the European Commission and competent authorities. The BSG was actively involved in providing input and feedback on various regulatory topics, with a focus on capital requirements, stress testing, risk assessment, and proportionality. The group also emphasized the need for clarity, consistency, and transparency in regulatory processes.