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CEBS Draft Proposals on Options and Discretions in the CRD

Core Content

The Committee of European Banking Supervisors (CEBS) conducted a public hearing in June 2008 to address the issue of options and national discretions (NDs) within the Capital Requirements Directive (CRD). The goal was to promote efficient and effective supervision and ensure the safety and soundness of the EU financial system by reducing these options and NDs, which are seen as obstacles to convergence of supervisory practices.

Main Objectives of CEBS

• Promote supervision: Efficient, cost-effective, and consistent supervision across the EU.
• Enhance safety and soundness: Through good supervisory practices and regulation.
• Ensure level playing field and proportionality: Across all EU member states.

Main Tasks of CEBS

• Provide advice to the European Commission (COM).
• Promote consistent implementation of EU legislation.
• Enhance supervisory cooperation and exchange of information.
• Alert on financial stability issues.

Structure of CEBS

• Established in November 2003, with its first meeting in January 2004.
• Composed of high-level representatives from banking supervisory authorities and central banks across the EU, including the European Central Bank (ECB).
• Includes 27 Member States, 3 observers from EEA countries, the COM, the ECB, and the Banking Supervision Committee of the European System for Central Banks.

Call for Advice from the COM

The COM requested CEBS to conduct a technical analysis of the options and NDs in its supervisory disclosure framework, including:

1. Indication of how each Member State (MS) exercises the options and NDs.
2. Whether further harmonisation is appropriate to achieve convergence.
3. The reasons for consensus or lack thereof on deletion or mutual recognition.
4. Drafting proposals where appropriate.

How to Take the Challenge Forward

• CEBS aimed to find a pragmatic and permanent way to reduce options and NDs.
• A number of additional discretions were identified by the industry and considered by CEBS.
• CEBS sought to gain a comprehensive understanding of the issues from various stakeholders.
• The industry generally supports reducing options and NDs as much as possible.

Possibilities to Solve Options and NDs

CEBS proposed several options to address the flexibility in the CRD:

1. Keep in current form: 35 provisions (12 to expire soon).
2. Add mutual recognition: 24 provisions (10 binding, 14 non-binding).
3. Supervisory decision (case by case): 37 provisions.
4. Delete: 35 provisions (14 becoming rules, 21 completely removed).
5. Option for credit institutions or investment firms: 22 provisions.
6. Add EU joint assessment process: 9 provisions.
7. Out of scope: 12 provisions.
8. Options and NDs requiring more detailed feedback: 27 provisions.

Why Keep Some Options and NDs?

Some options and NDs were retained due to:

• 15%: Require a future general overhaul.
• 35%: Will expire soon.
• 20%: Rooted in local market features and national laws.
• 30%: Lack of practical experience or common criteria for alternatives.

Implementation Timeline

• The COM is not planning to review options and NDs in the 2008 CRD review.
• CEBS final advice is expected by October 2008.
• The COM may review options and NDs by modifying annexes via comitology or through legislative amendments.

Input from Participants

CEBS invited input from all interested parties, particularly on the following:

• IRB (Internal Ratings-Based): Provisions 38, 41, 43, 44, 45, 112, 113, 116, 117, 118, 119 – lack of experience in using them.
• Trading Book: Provisions 81, 82, 86, 87, 89, 90, 93, 95, 96, 98, 100 – further input is needed.
• Other provisions: 3, 31, 33, 59, 61, 63.

Call for Comments

• Written comments are requested by 15 August 2008 and should be sent to cp18@c-ebs.org.
• Early responses are appreciated.
• The public hearing was an opportunity for open discussion.

Conclusion

CEBS aims to reduce options and NDs in the CRD in a balanced and pragmatic manner, considering both the needs of the industry and the supervisory authorities. The process involves extensive consultation and dialogue, with the final advice expected by October 2008.