EBA欧洲银行-FBF_CP11_20页_921kb

FBF Response on CP11 Summary

Core Content

The French Banking Federation (FBF) has provided a detailed response to the CEBS consultation paper CP11, which focuses on the technical aspects of the management of interest rate risk arising from non-trading activities and concentration risk under the supervisory review process. The response reflects the FBF's position on how these risks should be addressed in a way that is consistent with the Basel framework and European regulatory standards.

Main Views and Key Information

I. Interest Rate Risk in the Banking Book (IRRBB)

1. Support for Principle-Based Approach

   • FBF supports CEBS's initiative to provide high-level guidance for both institutions and supervisors.
   • The principle-based approach is well-suited for the diversity of banking book products and customer behaviors across Europe.

2. Internal Methodologies vs. Standardised Methodology

   • FBF recommends that supervisors should assess interest rate risk using the same internal methodologies that institutions employ.
   • If internal methodologies fail to meet IRRBB4 standards, supervisors could require an additional application of a standardised methodology (proposed as IRRBB1).

3. Rejection of Appendix II

   • FBF advises against including Appendix II in the final paper due to its overly prescriptive nature and potential conflict with industry practices.

4. Economic Value and Earnings Sensitivity

   • FBF proposes that interest rate risk assessment should include both sensitivity and the protection provided by the banking book's economic value.
   • They suggest that economic value should be a key variable in ICAAP (Internal Capital Adequacy Assessment Process) for interest rate risk.

5. Supervisory Review and Evaluation Process (SREP)

   • FBF supports the idea that supervisors should review the adequacy of internal capital in relation to IRRBB and concentration risk.
   • Supervisors should adopt a proportionate approach based on the nature, scale, and complexity of the institution's activities.

6. Dynamic and Tailored Approach

   • FBF emphasizes that IRRBB should be considered at consolidated level and not at sub-consolidation level.
   • They recommend that concentration risk analysis should be tailored to each institution's portfolio and not follow a static or systematic breakdown.

7. IFRS and IRRBB Alignment

   • FBF highlights the discrepancy between IFRS reporting and prudential risk reporting.
   • They warn that IFRS hedge accounting constraints may limit the ability of institutions to manage IRRBB effectively.

8. Stress Testing

   • FBF agrees that stress testing is a useful tool for identifying concentration risk.
   • They recommend that stress testing should be performed in accordance with CP12 principles.

II. Concentration Risk

1. Caution in Regulation

   • FBF urges caution in regulating concentration risk, noting the methodological and management challenges involved.

2. Differentiation Between Large Exposure and Concentration Risk

   • FBF stresses that Large Exposure and concentration risk are distinct issues and should not be conflated.
   • They argue that concentration risk should not be treated as a tickbox list but rather as part of a constructive dialogue between banks and supervisors.

3. Flexibility in Limit Settings

   • FBF opposes standard and systematic breakdowns of concentration risk (e.g., Concentration N°8).
   • They recommend that limit settings should be flexible and based on qualitative and quantitative indicators.

4. No Unique Indicator for Concentration Risk

   • FBF emphasizes that there is no single indicator for concentration risk and that multiple indicators should be used.
   • They advise against including prescriptive examples such as HHI, Gini curves, or other ratios in the final document.

5. Concentration as a Risk Factor

   • FBF notes that concentration is not inherently negative and should be seen as the other side of diversification.
   • They suggest that the absence of concentration or presence of diversification can be a significant mitigating factor.

6. Consolidated Approach

   • FBF recommends that concentration and diversification should be managed at consolidated level.
   • They argue that sub-consolidated analysis is inappropriate for risk management purposes.

7. No Regulatory Models

   • FBF opposes the use of regulatory models for benchmarking or identifying outliers in concentration risk.
   • They advocate for a pragmatic and judgmental approach by supervisors.

Conclusion

• The FBF is committed to building a level playing field through adapted regulation.
• They are available for further discussions with CEBS on these matters.
• The FBF emphasizes the importance of flexibility, proportionality, and a tailored approach in managing both IRRBB and concentration risk.

Attachments

• Detailed comments on CP11
• A marked version of the consultation paper

Additional Information

• The consultation period for CP11 ran from January to June 2006.
• CEBS welcomes responses to specific questions, such as whether the proposed guidelines are acceptable and any further technical comments.
• The document is aligned with current international thinking and Basel framework.
• It outlines general considerations, guidance for institutions, and guidance for supervisors.