CEBS – From Design to Delivery Helmut Bauer | 19 September 2006.

CEBS – From Design to Delivery

Helmut Bauer | 19 September 2006

Helmut Bauer | 19 September 2006 2

CEBS historic


CEBSCEBS’ operational


CEBS’ operational structure 2006

Groupe de Contact

Chair Helmut Bauer

BaFin

Capital Requirements

Kerstin af Jochnick

Finansinspektion

Financial Information

Chair Arnoud Vossen

De Nederlandsche Bank

Secretariat

Secretary General

Andrea EnriaBanca d’Italia

Bureau

ChairDanièle Nouy

Commission Bancaire

Vice ChairHelmut Bauer

BaFin

Andreas IttnerOesterreichische

Nationalbank

Kerstin af Jochnick

Finansinspektion

Andrzej ReichNarodowy

Bank Polski

TFCM joint BSC/CEBS task force on crisis management

TFNT on implementationof the Francq report• mediation• delegation etc.


Internal vs. external agenda

regulatory/supervisory convergence

European Commission

Industry

regulatory advice

enhanced co-operation

external agenda

internal agenda


External agenda - Advice given

31 August 2006 INDUSTRY PRACTICES ON LARGE EXPOSURES

23 June 2006 CURRENT RULES ON OWN FUNDS AND MARKET TRENDS IN NEW CAPITAL INSTRUMENTS

3 May 2006 CURRENT SUPERVISORY PRACTICES ON LARGE EXPOSURES

30 September 2005 CEBS ADVICE ON DEPOSIT GUARANTEE SCHEMES

1 July 2005 CEBS ADVICE ON E-MONEY

31 May 2005 CEBS ADVICE ON CROSS-BORDER MERGERS AND ACQUISITIONS

21 December 2004 CEBS ADVICE ON PRUDENTIAL FILTERS FOR REGULATORY CAPITAL

28 October 2004 CEBS' WORK ON NATIONAL DISCRETIONS


External agenda - Pending calls

??? CALL FOR TECHNICAL ADVICE ON LIQUIDITY RISK MANAGEMENT

22 August 2006 CALL FOR TECHNICAL ADVICE ON COMMODITIES BUSINESS

3 August 2006 CALL FOR TECHNICAL ADVICE ON DEFINITION OF OWN FUNDS

8 December 2005 CALL FOR TECHNICAL ADVICE ON DEFINITION OF LARGE EXPOSURES RULES

1 July 2005 CALL FOR TECHNICAL ADVICE ON DEFINITION OF OWN FUNDS


LE

December 2005: EC call for advice on LEA. Stocktake on the range of supervisory practices

http://www.cebs.org/Advice/LE_report.pdf

B. Industry consultation on market practices – banking and trading books

– smaller and larger firms

C. Analysis of the types of credit risk mitigation products that impact on the calculation of LE

– quantitative and qualitative – banking and trading books– smaller and larger firms

http://www.cebs.org/Advice/LE_industryreport.pdf

two further areas:– analysis of the fundamental prudential principles– recognition of good credit risk management within LE rules

pending


LE

Methodology:EGCR sub-group

On-line questionnaire and responses http://www.cebs.org/Advice/LE_questionnaire.pdf

http://www.cebs.org/Advice/LE_responses.htmInformal dialogue with experts designated by CEBS consultative panel

Scope:(i) Approaches to measuring and managing singlename concentration

risk

(ii) Approaches to measuring and managing 'other' concentration risk (sectoral, geographic)

(iii) Approaches to calculating large exposures,

(iv) The assessment of connectedness of exposures,

(v) The group-level issues,

(vi) The use of credit risk mitigation techniques to reduce singlename concentration risk

(vii) Internal governance and reporting practices, and

(viii) The respondent's views of the current large exposures regulatory regime.Timeline: Art. 119 CRD requires EC to submit report to EP and Council by 31 December 2007

http://www.cebs.org/Advice/LE_questionnaire.pdf


LE industry responses

Smaller respondents: • Current regulatory regime is sufficient

Banking groups and larger institutions: • Risk weights for LE regime should be tied to risk weights for capital regime and should take into

account the counterparty creditworthiness and transaction maturity • Gap between internal measurement, management, and reporting and CRD/national regulatory

limits and reporting requirements

Investment management firms, energy trading firms, commodity trading firms, money market funds, factoring companies:

• Questioned appropriateness of applying the LE regime to their business

What else:• Inadequate treatment of derivatives, trading book activities, investment management and fund

operations, other modern financial instruments, and obligors’ creditworthiness • Unduly constraining and inflexible intra-group exposure limits conflicting with internal risk

standards• Lack of harmonisation across EU increasing administrative costs and complicating cross-border

business.


LE industry expectations

a. Harmonisation of how each member state treats breaches of limits,

b. Preference, at least on the part of large institutions, for integration of the LE scheme into the Pillar 2 framework for concentration risks, without the need for a detailed regulation because it would be fully integrated into the ICAAP process,

c. Should the LE regime be maintained, it ought be more risk-sensitive and more closely aligned with institutions’ internal approaches.


Own funds

June 2005/August 2006: EC call for advice on own fundsA. Survey of implementation of current rules on own funds across Member

States http://www.cebs.org/OF_part1_rules.pdf

B. Analysis of the capital instruments recently created by the industry http://www.cebs.org/OF_part1.pdf

C. Development of guiding principles behind own funds pending

D. Quantitative analysis of the types of capital held by credit institutions withinMember States pending


Own funds

Methodology:EGCR set up sub-group (upgraded to joint CEBS/CEIOPS task force)

Questionnaire on rules to CEBS members (A.) on „innovative“ instruments to market participants (B.)

http://www.cebs.org/Advice/OF_q.pdf

Scope:A. Member States national own funds regimes B. innovative instruments

(i) What innovative instruments have reached reasonable market standing? Why? What characteristics do they have in common?

(ii) What are the main market conventions/factors that govern the issues of innovative instruments?

(iii) New trends? What would prevent/favour the development of innovative instruments?

(iv) Characteristics of innovative instruments in the future?

(v) Key industry expectations/concerns regarding supervisors’ approach to innovative instruments?

(vi) Views of market participants regarding what main differences in supervisory approaches have the most important impact on the structure and quality of own funds?

Timeline: Art. 62 CRD requires EC to submit proposal for amendments to EP and Council by 1 January 2009 - deadlines set by EC to CEBS: for A. and B. August 2006, for D. October 2006 to March 2007

http://www.cebs.org/Advice/LE_questionnaire.pdf


Own Funds - rules

Working in parallel with the Basel Committee is crucial

IAS/IFRS and CEBS prudential filters introduce necessary adjustments to regulatory own funds

Original own funds: following the BCBS Sydney press release of 1998 some member states have included new capital instruments (‘hybrids’) into original own funds - CRD has not been updated – divergences remain

• majority of members apply 15% limit to hybrids with incentives to redeem

• differences are wider regarding the limit on total of hybrid instruments (taking into account also hybrids with incentives to redeem), which can reach 50%

Additional own funds: conditions of eligibility laid down in the CRD have in general been consistently implemented

• Undated vs. dated vs. minimum maturity until first call

• Prior supervisory approval before eligible/before call can be exercised

• Step up subject to formal vs. Informal levels

Supplementary additional own funds:

• amortisation of subordinated loans


Internal vs. external agenda

regulatory/supervisory convergence

European Commission

Industry

regulatory advice

enhanced co-operation

external agenda

internal agenda


Internal agenda - 2006 work programme

„2006 will be a year of continuation, in the sense that CEBS’ focus will remain firmly on the CRD, but will also mark a shift of orientation and emphasis,

from design to delivery of a more convergent supervisory framework.“


Work programme 2006

Finalise guidelines/standards in early 2006 - focus on • Implementation and monitoring of convergence progress and

• “Maintenance” through adjustments and updates in the light of practical experience

High priority on fostering convergence of supervisory practices and a common European supervisory culture

• Training and staff exchange

• Setting up of operational networks for the supervision of EU crossborder banking groups – college/cooperation processes


Guidelines

4 April 2006 CEBS GUIDELINES ON VALIDATION

25 January 2006 CEBS GUIDELINES ON SUPERVISORY COOPERATION FOR CROSS-BORDER BANKING AND INVESTMENT

FIRM GROUPS

25 January 2006 CEBS GUIDELINES ON SUPERVISORY REVIEW PROCESS

20 January 2006 CEBS GUIDELINES ON THE RECOGNITION OF EXTERNAL CREDIT ASSESSMENT INSTITUTIONS

13 January 2006 CEBS GUIDELINES ON COMMON REPORTING

16 December 2005 CEBS GUIDELINES ON FINANCIAL REPORTING

1 November 2005 CEBS GUIDELINES ON SUPERVISORY DISCLOSURE

21 December 2004 CEBS GUIDELINES ON PRUDENTIAL FILTERS FOR REGULATORY CAPITAL


Pending CPs

9 June 2006 CONSULTATION PAPER (CP12) on Stress testing under the Supervisory Review Process

6 April 2006 CONSULTATION PAPER (CP2 revised) on Standards on Outsourcing

23 March 2006 CONSULTATION PAPER (CP11) on Technical Aspects of the Management of Interest Rate Risk arising from non Trading Activities and Concentration Risk under the Supervisory Review Process


Maintenance

Work programme 2006:

CEBS „attention will … increasingly turn to carrying out dynamic “maintenance” of the standards and guidelines through adjustments and updates in the light of practical experience.“

EGCR networks on validation issues („NOVI“) to tackle issues arisinf wrt IRBA and AMA validation.


Operational networks

Work programme 2006:

„The setting up of operational networks is particularlyimportant with regard to the supervision of EU crossborderbanking groups. The consolidating home and the host supervisors will have to cooperate and coordinate supervisory activities at the operational level.“

Implementing:• Articles 129, 131, 132 CRD and

• CEBS‘ Home/Host guidelines.


Operational networks

GdC subgroup on operational networking (SON) • to support the design, the setting up and the operation of

college/cooperation processes between consolidating home and host supervisors

• to identify the real life issue and assist the finding pragmatic solutions

• to enhance day-to-day consistent supervision and cooperation between consolidating and host supervisors of cross-border banking groups

– Ensuring consistency of approaches within and across operational networks– Conducting bottom-up surveys of market and supervisory practices

• to operate as an interface between CEBS and industry

1st phase: Focus on 10 large EU banking groups

Contacts:

CEBS http://www.c-ebs.org

Helmut [email protected]

CEBS – From Design to Delivery Helmut Bauer | 19 September 2006.

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Transcript of CEBS – From Design to Delivery Helmut Bauer | 19 September 2006.