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EBIC Summary on CEBS Consultation on SREP and Capital Adequacy Guidelines

Core Content

The European Banking Industry Committee (EBIC) submitted a contribution to the Committee of European Banking Supervisors (CEBS) consultation on guidelines for the joint assessment of the Supervisory Review and Evaluation Process (SREP) and the joint decision regarding the capital adequacy of cross-border banking groups. EBIC emphasized the importance of effective coordination between home and host supervisors and highlighted several key issues that need to be addressed to improve the SREP process.

Main Views and Key Points

1. Approach to SREP Assessment

• EBIC supports a top-down approach for the joint assessment of cross-border groups, as it facilitates capital calculation, stress testing, and the identification of relevant local issues at the group level.
• A bottom-up approach is considered inefficient, leading to redundant efforts, duplicate documentation, and overlapping reporting.

2. Involvement of Banking Groups

• EBIC stresses the importance of involving the banking group throughout the SREP process.
• Close integration with the group at all stages ensures coordinated dialogue and effective communication of results.
• The group should be involved in discussions regarding the assessment outcomes and supervisory decisions.
• A transparent evaluation process is recommended to allow banks to address criticisms and improve their practices.

3. ICAAP and SREP Integration

• ICAAP (Internal Capital Adequacy Assessment Process) is a bank-driven process, and EBIC welcomes this recognition in CEBS guidelines.
• SREP should be flexible to accommodate group-specific ICAAP standards.
• Group-level ICAAP should reflect the situation of all relevant entities within the group and their risk management practices.
• EBIC supports the CEBS recommendation that the quality of internal capital and its impact on capital adequacy should be discussed within the supervisory college.

4. Stress Testing and Capital Requirements

• EBIC is concerned that multiple stress tests could crowd out firms' own risk management activities due to resource constraints.
• A combination of solo and group-level stress tests may lead to excessive capital requirements being imposed on individual subsidiaries.
• While group-level risk awareness is important, decision-making authorities may not align with solo entities, limiting the value of stress testing at that level.

5. Feedback and Implementation

• EBIC highlights the lack of a formal feedback framework for communication from supervisors to banks.
• It recommends that supervisors announce the timing of feedback on documentation and capital adequacy assessments.
• An implementation study should be conducted after one year to ensure consistency in the use of templates and improve standardization.

Conclusion

EBIC advocates for a coordinated, top-down approach to SREP and capital adequacy assessments, emphasizing group-level integration, transparent communication, and flexibility in ICAAP implementation. It also calls for careful consideration of stress testing requirements to avoid overburdening banks and for the establishment of a formal feedback mechanism to enhance the effectiveness and fairness of the supervisory process.