EBA欧洲银行-03_FBF_Federation-Bancaire-Francaise_11页_504kb

FBF Comments on the Consultation Paper Related to the Large Exposure Regime

Core Content

The French Banking Federation (FBF) has provided detailed feedback on the consultation paper related to the revised Large Exposure Regime under the Capital Requirement Directive (CRD). The FBF represents over 450 commercial, cooperative, and mutual banks in France, including both domestic and foreign-based institutions. The main focus of the comments is on the clarity, flexibility, and practicality of the proposed guidelines, particularly regarding the identification of connected clients, treatment of exposures to schemes with underlying assets, and reporting requirements.

Main Views and Key Points

1. Connected Clients

• Clarity of Control Interpretation: The guidelines on the interpretation of control are not sufficiently clear, especially in cases involving two equal partners or owners who jointly control an entity. The current rule (50% ownership) may lead to over-declaration of exposures.

  • Example: If a bank lends to a company co-controlled by two entities, the exposure should be declared twice (once for each group), which is seen as an overstatement of risk.

• Economic Interconnectedness: The guidelines on economic interconnectedness are not clear enough and are difficult to implement in practice. There is a risk of inconsistent application across Europe.

  • Example: A supplier of two major car manufacturers may be grouped with each manufacturer, leading to over-declaration of exposure.
  • The concept is too vague and may not distinguish between sectoral/geographic concentration and true interconnectedness.

• Funding Source Commonality: The interpretation of connection through a common funding source is confusing and may lead to misclassification of clients.

  • The example involving ABCP conduits highlights the potential confusion between credit risk and liquidity risk.

• Threshold for Large Exposure: The proposed 1% threshold is applied to gross exposure, which the FBF considers too low and inappropriate. They suggest applying it to net exposure instead.

  • A higher threshold (e.g., 3%) and exclusion of retail exposures are recommended.

• Identification Process: The identification of connected clients is seen as a complex and burdensome process, especially for large institutions with many counterparties.

• Group Declaration: The FBF supports the 2-templates approach, which allows for detailed group-level reporting and lighter client-level reporting, as opposed to the 1-template approach which is seen as too onerous.

2. Treatment of Exposure to Schemes with Underlying Assets

• The FBF believes the proposal lacks sufficient flexibility for institutions to manage different types of schemes.

• The partial look-through approach is considered overly conservative and burdensome, especially for large institutions with many schemes.

• The residual approach is also too conservative as it assumes full correlation of unknown exposures, which is not economically sound.

• Alternative Proposals:

  • Allow allocation of unknown exposures to several fictive groups (e.g., based on country or asset class).
  • Apply a haircut to the total exposure to the "unknown client" to account for diversification.

• Tranched Securitisation: The proposed treatment is seen as burdensome and costly to implement. There are also ambiguities in the application of haircuts to specific tranches like mezzanine.

• Branched Securitisation: The treatment is not appropriate, especially for institutions investing in junior tranches. The FBF suggests excluding ABS with retail underlyings from the regime.

3. Reporting Requirements

• The FBF agrees with the net exposure calculation but questions the application of the 10% limit to net exposure, as it includes exposures with a 0% weight, which are not considered risky.

• They believe that the 10% limit should only apply to counterparties that are not exempt (e.g., intra-group, sovereigns).

• The calculation base for the 10% and 25% limits should be the same to avoid confusion.

• Credit Risk Mitigation (CRM) reporting is supported, but precision is needed regarding the 50% reduction for real estate, including whether it applies to market value or original value.

• The FBF opposes adding more detailed information to the reporting, as it would increase complexity and burden.

• Examples of Ambiguity:

  • The CCF (Credit Conversion Factor) is not included in Template 1 of Annex 4.
  • The weighting of exposures by risk type (e.g., securities, guarantees) is not specified in the reporting instructions.
  • Example 2 of Annex 5 is unclear on the application of haircuts.
  • Examples 4 and 5 in Annex 5 are confusing regarding the calculation of additional capital.

4. Other Comments

• The FBF questions the practicality of using national practices for counterparty identification, especially for cross-border banks, and suggests a centralized system for identification.

• There is a missing code in Template 1 of Annex 4 for intra-group non-credit institutions.

• They also raise questions about whether family loans to a large corporate should be considered for interconnectedness assessment.

Summary of Key Recommendations

• Clarify the definition of control to avoid over-declaration in joint ownership scenarios.
• Provide more flexibility in the treatment of exposures to schemes with underlying assets.
• Apply the 1% threshold to net exposure instead of gross exposure.
• Exclude retail exposures and non-consolidated UCITS from the large exposure regime.
• Support the 2-templates approach for reporting to reduce burden.
• Clarify the application of haircuts, CCF, and weighting of exposures in the reporting framework.
• Use a centralized system for counterparty identification to avoid inconsistencies in cross-border reporting.
• Address ambiguities in the treatment of tranching and interconnectedness in securitization.