In general, ESBG welcomes the approach by the ECB to align the conditions and criteria for strengthening a transparent and effective approval process. In this context, we would like to highlight the importance to do so without setting new or additional regulation, which are not based on or covered by level 1 regulation passed by the EU legislator; instead giving a detailed insight into the ECB’s decisions where necessary and requested by the legislator.
While the explanatory notes of the consultation paper refer to the specific Recitals 91 and 92 of Regulation (EU) 575/2013 (CRR) as well as those of Delegated Regulation (EU) 2015/62, it does not mention what is the most important consideration with respect to the topic at hand, the justification for Art 429(7) CRR included in the explanatory memorandum to the Delegated Act on the leverage ratio (LR).
The Commission states: While the changes proposed in this delegated act are generally aligned with the Basel revised standards on the LR, one of those changes addresses a 'Union specificity' that is not addressed by those standards. This specificity stems from the fact that, compared to the Basel framework, the CRR has a broader scope of application. The CRR applies to all banks (and investment firms) established in the Union, at both consolidated and individual levels, while the Basel framework applies only to (large) internationally-active banks, generally at consolidated level. This broad scope of application applies both for risk-based capital requirements and LR-related requirements under the CRR. However, unlike the risk-based capital requirements, the LR-related requirements do not currently foresee a specific treatment of intragroup exposures when institutions apply the CRR at individual level. In order to align the two, this delegated act therefore foresees, subject to approval from the competent authority and subject to certain conditions, the possibility to exclude intra group exposures when the LR rules are applied at individual level. The application of the LR at individual level to intragroup exposures, when risk-based capital requirements are not applied at this level, would not be consistent with the role of the leverage ratio as a backstop to the risk-based capital requirements. This is particularly relevant for co-operative banking groups that have many smaller entities affiliated to a central body.
In ESBG's opinion, this statement clearly indicates the intention of the Commission (and – as a result – the delegated regulation) to align the specific treatment of intragroup exposures in the calculation of risk-weighted assets (i.e. the zero-risk weighting of specific exposures) with their treatment in the leverage ratio calculation (i.e. the exclusion of these same exposures from the exposure measure). As noted by the Commission, not excluding the intragroup exposures from the LR would make it impossible for the leverage ratio to act as a backstop; in fact, in all institutions with intragroup exposures of a non-negligible size, the leverage ratio would likely become the binding constraint if the exposures were not excluded from the calculation in parallel to the zero-weighting for the calculation of risk-based capital requirements.
Besides, this issue is not only relevant for co-operative banking groups but also other types of banking groups operating centralised liquidity and funding management for a number of subsidiaries. It is especially important for all types of Institutional Protection Schemes (IPSs), including those operating in the savings bank sector.
In ESBG's view, there should be no deviation in the exposures considered under either Art 113(6) CRR or Art 429(7) CRR; these should be identical. This also implies that the assessment of the exclusion under Art 429(7) CRR should follow the assessment under Art 113(6) CRR so as not to create inconsistencies of treatment; which is also clearly indicated by the CRR text of Art 429(7) CRR itself as it refers only to the conditions set under Art 113(6) CRR, without any indication of separate or additional conditions that need to be considered when applying Art 429(7) CRR.
As a result, ESBG believes that there should not be any additional assessment criteria for the authorisation under Art 429(7) CRR compared to those used under Art 113(6) CRR. Therefore, we believe that the criteria stipulated for the authorisation under Art 429(7) CRR are not appropriate, as the ECB only provides further specification for the assessment of compliance with Art 113(6)(c),(d) and (e) CRR in its consultation paper and does not propose to expand the list of assessment criteria under Art 113(6) CRR.
>> See the full response (.pdf)
>> See ESBG postion on leverage ratio
>> Position on capital requirements (CRD/CRR)