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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