EBA欧洲银行-CP16_Febelfin_18页_1mb

Summary of Febelfin's Comments on Large Exposures (CP16)

Core Content

Febelfin, representing four trade associations from the Belgian financial industry, provides detailed comments on the CEBS consultation paper regarding the Large Exposures (LE) regime. The comments are subject to the final decision by the Board on 22 February 2008 and reflect a cautious and supportive stance towards the LE regime as a backstop mechanism, but with specific recommendations for consistency, scope, and simplification.

Main Views

• Support for LE as a backstop: Febelfin supports the idea of the LE regime as a safety net, but emphasizes that it should remain principles-based and consistent with Pillar II on concentration risk.
• Consolidated level of application: They advocate that the consolidated level is the appropriate level for applying the LE regime, as a default by a counterparty could affect the entire banking group.
• Exemption for intra-group and interbank exposures: Febelfin suggests that intra-group and short-term interbank exposures should be exempt from the LE regime, due to their different nature and role in liquidity and credit functions.
• Full convergence with CRD: They strongly support full convergence between the LE regime and the Capital Requirements Directive (CRD), particularly in exposure valuation, collateral eligibility, and risk-weighting.
• Opposition to national discretions: Febelfin opposes national options or divergent interpretations, advocating for a single, harmonized regime across the EU.
• No duplication with concentration risk: They emphasize that the LE regime should not duplicate the concentration risk regime, and that reporting on the same risks should be avoided.
• Transitional measures: A transitional period is necessary to allow institutions to adapt to the new regime.

Key Recommendations

• Single set of rules: Febelfin advocates for a single set of rules for the LE regime, consistent with the CRD and Solvency II, to ensure comparability and simplicity.
• Conversion factor alignment: They support the use of identical conversion factors to those in the CRD, with no divergence, to reduce administrative burden.
• Exposure valuation: On-balance sheet items should be calculated consistently with CRD, either net of provisions under the standardized approach or gross of provisions under the IRBA approach.
• Collateral eligibility: Physical collateral should remain eligible for large exposures, as it is consistent with the CRD's credit risk mitigation (CRM) rules.
• Exemption for sovereigns: They agree with the automatic exemption of exposures to sovereigns and international organizations, as long as they are treated in line with the CRD and recognized as equivalent to central government exposure.
• Transparency and consistency: They stress the importance of transparency and consistency between the LE regime and other prudential frameworks.

Detailed Comments

Exposure Value

• The LE exposure should be calculated using the formula:
  CRD EAD * CRD LGD * LE risk-weighting = LE exposure
  with the following risk-weighting:

  • 0% for first-class sovereign risk
  • Maximum 20% for first-class banks (to be confirmed)
  • 100% for all other cases

• They oppose increasing the conversion factor for interbank exposures to 100%, as it could negatively impact liquidity management.

Credit Risk Mitigation

• CRM should remain consistent with the CRD and Solvency II.
• They argue that differentiated treatment between CRD and LE for CRM is unnecessary and would create complexity and inefficiency.
• Indirect exposures should not be included in the LE regime, as they are subject to case-by-case credit analysis and are not directly incurred by the institution.

Intra-Group Exposures

• Intra-group exposures should be totally exempt in the EU and EEA, provided the institution meets eligibility criteria:
  • Strong central functions
  • Central risk policy and capital policy
  • Support for subsidiaries
  • No formal guarantee required, only a commitment by the parent company
• They warn that including intra-group exposures could lead to paradoxical situations and undermine liquidity management within the banking group.

Interbank Exposures

• Short-term interbank exposures should be excluded from the LE regime due to their liquidity providing function.
• They believe that the chances of unforeseen defaults are minimal for short-term and highly rated counterparties.
• A full harmonization at the EU level and alignment with the CRD is essential.

Conclusion

Febelfin emphasizes the need for consistency, simplicity, and harmonization between the LE regime and the CRD. They advocate for exemptions in certain areas, including intra-group and interbank exposures, and believe that the LE regime should not be used to address liquidity or crisis management issues. The transition period is considered necessary to ensure smooth implementation. Overall, they support a principles-based approach and single set of rules for the LE regime to avoid duplication and administrative burden.