Supervisory arrangement
EC proposal for a directive amending the Crd
The EC proposal is aimed to create colleges of supervisors (CoS) for the supervision of cross-border banking groups (article 131a) and puts them in charge of (i) ensuring an effective information sharing; (ii) agreeing on voluntary entrustment of tasks and delegation of responsibilities; (iii) determining examination programmes for the Supervisory Review Process (SREP); (iv) removing unnecessary duplication of supervisory requirements; (v) applying prudential requirements in a consistently way within all the entities of the group and (vi) coordinating with Cross-border Stability Group (CBSB) in case of crisis.
The establishment and functioning of the CoS is based on written arrangements; CoS are chaired by the consolidating supervisor (i.e. the competent authority responsible for the exercise of supervision on a consolidated basis of EU parent credit – new article 4 point 48) and are composed by the competent authorities of host countries where subsidiaries and systemically relevant branches are established.
In the absence of a joint decision between the competent authorities within six months, the consolidating supervisor has the power to make its own decision on the Pillar II matters, namely the assessment of the economic capital (Internal Capital Adequacy Assessment Process – ICAAP) and its review (SREP), and on the capital adds-on.
The consolidating supervisor should make its own decision on the banking group’s common reporting format by 30 June 2011. This is legal way to make binding the ones that should be issued by Committee of European Banking Supervisors (CEBS) by 2012, as stated by the September 2008 Informal ECOFIN.
A mediation mechanism should be provided by CEBS to ensure conflict resolution within the CoSs; the consolidating supervisor is indeed obliged to take into account the CEBS non-binding advice and explain any significant deviation there from (“comply or explain” principle).
The CEBS should play a role in ensuring a level playing field among the different CoSs; therefore the consolidating supervisors are obliged: (i) to inform the CEBS of the activities of the CoSs, including in emergency situations, and (ii) to follow CEBS (non-binding) guidelines for the operational functioning of the CoSs.
As requested by the Financial Stability Forum (FSF) in its recommendations, national authorities of third counties, if appropriate, could join the CoSs as well.
ABI position
The Italian Banking Association (ABI) welcomes the EC proposal of Directive amending the CRD because it acknowledges all the proposals we put forward in our position response to the EC consultation on the supervisory arrangements.
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Large exposures
EC proposal for a directive amending the Crd
The aim of the large exposures regime is to prevent an institution from incurring disproportionately large losses as a result of the failure of an individual client (or a group of connected clients) due to the occurrence of unforeseen events.
In order to fix the shortcomings of the current discipline, the Commission proposed a number of improvements. Firstly, the Commission decided to clarify the scope of the discipline, namely the principle of “interconnectedness”; this serves to define whether two or more counterparties should be considered as connected and thus as a single unit. The Commission proposes to state the funding criterion within the definition of connected clients. The Commission basically tries to address the IKB case of last year by requiring the treatment as a single unit of two clients which are substantially funded by a unique same bank.
On the intra-group exposures, the Commission has kept the national discretion and, as a general rule, proposed to grant an exemption for intra-group exposures based on the conditions as mentioned in Article 80(7) on (i) the transferability on own funds and (ii) the fact that the counterparty should be established in the same Member State as the credit institution. This will result in the non-application of the exemption for cross-border groups.
Specific provisions were proposed for inter-bank exposures, as they pose a significant risk as banks; a failure of one institution can cause a failure of other institutions with the possibility of causing systemic crisis.
The Commission proposes to remove any preferential treatment for interbank exposures: no lower risk weight (therefore 100% risk weight) and no maturity-based exemption (currently most Member States use their discretion to exempt interbank exposures of a maturity of 1 year or less).
ABI position
The main concern for ABI are the national discretions that the Commission is keeping in the proposal of Directive amending the CRD; we believe that all the national discretions contained in the proposal should be deleted in order to ensure a level playing field and to develop consistent supervisory approaches across the EU. Applying the same rules at continental level would indeed permit to provide national authorities, colleges of supervisors and central banks with consistent and reliable data to conduct solvency analysis and impact assessments in normal times and in crisis situations.
In our proposal of amendments (see enclosure) we therefore propose to delete the possibility for Member States to define national discretions and we call for clarity in the definition of connected clients and in the reporting frequency.
Obviously, we think that it is not acceptable to discriminate against the Euro in the possibility to exempt overnight interbank lending.
ABI Comments on IASB Discussion Paper "Reducing complexity in reporting financial instruments"
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Market disclosure (Pillar 3)
In response to recent events in the credit markets, discussion in ECOFIN (the EU Council of Finance Ministries) and discussions between the financial industry and the European Commission, the industry set up a Working Group (WG) to examine the securitisation disclosure requirements embodied within the Pillar 3 Framework set up by the Basel Accord and the Capital Requirements Directive.
The industry WG is composed by the European Banking Federation, the London Investment Banking Association, the European Savings Banks Group and the European Association of Public Banks and a number of banks.
The objective of this WG is to achieve more consistency in banks’ disclosures in the area of the securitisation by means of good practice guidelines.
On 30 June 2008 the industry published a draft industry guidelines “Good Practice Guidelines on Pillar 3 Disclosure requirements for Securitisation”. On the basis of the responses received, the Working Group will finalise the guidelines. These guidelines could be adopted by the banks that will publish Pillar 3 disclosures in 2009.
The WG believes that the guidelines should not be static but be subject to review and revision. For example, these industry guidelines should be updated in light of Basel Committee’s recommendations that the BCBS will issue by 2008 in order to strengthen disclosure requirements under Pillar 3.
On 15 September ABI sent its comments to industry WG.
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