Developing a proportionate, fair and efficient IRRBB framework in the EU

On 4 April 2022, ESBG responded to the EBA consultation specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions.

Our response stresses that the current framework is too complex and challenging to implement for smaller institutions with non-complex operations and limited market risk exposure. Although we need a sufficiently prudent management of interest rate risk amongst all EU/EEA banks, the framework should also consider the peculiarities of national banking models and the interest risk inherent in national markets.

As regards the definition of large decline for the purpose of the net interest income (NII) supervisory outlier test, the proposed “Option B” referring to a cost related metric seems more aligned with established internal interest rate risk management methodologies. Yet, the removal of the administrative expenses term, which generates volatility and complexity, is pivotal to favouring this option.

Considering the limited ability of the standardised approach to capture adequately the exposure of each entity to IRRBB, any obligation to use it should be conditional on the competent authority having demonstrated that it would be more relevant than the internal model approach (IMA) it would replace.

In the area of credit spread risk arising from non-trading book (CSRBB), the scope of the framework is too extensive as it includes all instruments. On the contrary, credit spreads, which are based on a market perception, should not apply to illiquid and non-market instruments whose value does not change according to these market spreads. The scope should thus be restricted to instruments that have a clear market price transparency andare easily tradable on a large and deep enough market, because only these assets are subject to the market perception. Moreover, a clear definition of the terms “market credit spread” and “market price of credit risk” is needed.

To avoid different interpretations and ensure a level playing field, it should be stated explicitly in the Guidelines, that non-marketable instruments, such as loans to customers, should be generally exempted from CRSBB as they are covered by the bank’s credit risk management framework.

Finally, the new IRRBB standardised methods for the economic value of equity (EVE) and NII seem to be very calculation intensive but, at the same time, less granular than many banks’ internal models. We therefore stress that both banks and supervisors may lose interest rate risk management insights if banks are required to apply them by their national authorities. ​


Considerations on the BCBS principles for the management & supervision of climate-related financial risks

The Basel Committee on Banking Supervision (BCBS) has published a public consultation on principles for the effective management and supervision of climate-related financial risks. The document forms part of the Committee’s holistic approach to address climate-related financial risks to the global banking system and aims to promote a principles-based approach to improving both banks’ risk management and supervisors’ practices in this area. This new position paper based on our response to the consultation.


Considerations on the BCBS principles for the management & supervision of climate-related financial risks

The Basel Committee on Banking Supervision (BCBS) has published a public consultation on principles for the effective management and supervision of climate-related financial risks. The document forms part of the Committee’s holistic approach to address climate-related financial risks to the global banking system and aims to promote a principles-based approach to improving both banks’ risk management and supervisors’ practices in this area. This new position paper based on our response to the consultation.


ESBG welcomes EBA's greater emphasis on proportionality

ESBG welcomes that the EBA is placing greater emphasis on proportionality in regulation, and hopes that this will pave the way for more proportionality in future regulations. However, more can be done to improve the proposed classifications, increasing granularity and have a paper which better explains how the ideas could be implemented.

We welcome the EBA’s commitment to using, primarily and as far as possible, already existing data from its database of supervisory reporting. However, if more data is required from financial institutions, we urge the EBA to deliver on the promise that these collections are proportionate to the complexity of the underlying requirements itself and to the burden of institutions and supervisors to deliver such data.

We consider the step-by-step approach to be suitable in principle. However, the procedure in step 2 is not clear. In our view, the proposals for the metrics are not yet fully developed. It is not sufficiently clear how on this basis – without concrete benchmarks – the decisions of a political expert can be better supported.

ESBG very much appreciates the inclusion of a classification for co-operative and savings banks. These banks are by nature local, rather small banks with a low-risk profile and a focus on core banking business. We urge the EBA should ensure that the proportionality considerations are also applied to small and non-complex institutions that are part of a consolidated group, particularly credit institutions that are only locally/regionally active and therefore do not have a systemic impact.

We would like to point out that Classification III has clear disadvantages compared to Classifications I and II. Institutions that are to be subject to the strictest regulation are to be delimited by means of a size criterion (€ 30 billion balance sheet total; point 31 lit. d of the EBA discussion paper). A delimitation on the basis of the balance sheet total would contradict the basic idea of a sufficiently differentiated regulation on the basis of the pro-portionality principle.


The EU Commission’s proposed ‘single-stack’ approach for Basel III finalisation would harm European banks

ESBG also calls for a proportionate implementation of the Basel III framework in the EU banking system to ensure that Europe’s diversified banking sector continues to foster economic growth.

BRUSSELS, 27 October 2021 – The European Savings and Retail Banking Group (ESBG) calls on the European Parliament and the Council of the EU to reconsider the output floor implementation on a ‘single-stack’ approach included in the European Commission’s proposal for the finalisation of the Basel III standards in the EU, announced today.

The ‘single-stack’ approach would mean applying the output floor to EU-specific capital requirements, on top of internationally agreed ones. ESBG calls for the use of the ‘backstop approach’, meaning applying the floor only to internationally agreed capital requirements. The ‘backstop approach’ would help preserve and strengthen the EU’s diverse banking system. Otherwise, the ability of Europe’s diversified banking sector to provide finance to the real economy and foster economic growth could be hampered.

“ESBG and its members believe that the Co-legislators should implement the Basel III framework adapting it to the specificities of the European banking market, where needed. This includes an application of the output floor that does not exceed what is explicitly laid down in the agreement on the finalisation of Basel III”, said Johanna Orth, Chair of ESBG’s Task Force on Basel.

The package of reforms to finalise the Basel III framework is designed for internationally active banks. Therefore, when implemented within the EU regulatory framework the EU special features should be considered, including those which are already enshrined in the banking regulation. In particular, the so-called SME supporting factor should be retained, as it provides the right incentive to stimulate real economic growth.

“The implementation of the Basel standards within the EU regulatory framework should reflect the proportionality principle, taking into consideration the risk nature, scale and complexity of the activities of European credit institutions”, said ESBG Managing Director, Peter Simon.

This would allow financial institutions to carry out their activities under a non-detrimental regulatory framework which strengthens the European banking sector – the backbone of the EU’s ‘real economy’. A disproportionate regulatory weight also would negatively impact banks, which would be overburdened with regulatory requirements that could even push resources away from customer service.

The EU banking sector’s diversity ensures that a full range of services is offered to customers at competitive prices, in particular by banks that focus on SMEs, households and local communities.

In this context, ESBG is looking forward to bringing the voice of its members to the upcoming legislative process. We believe that close cooperation among all stakeholders will be indispensable for the successful implementation of the finalised Basel III standards. We encourage the EU decision-makers to make full use of the discretions envisaged in the Basel III text, including those on operational risk, which will be crucial for continuous and solid credit provisions to the real economy after the implementation phase.


Banking sector calls for participation in development of EU e-ID Toolbox

BRUSSELS, 2 September 2021 – The European Credit Sector Associations (ECSAs), submitted joint feedback on 30 August to the European Commission’s initiative for an EU digital ID scheme for online transactions across the Member States.

The ECSAs include the European Banking Federation (EBF), the European Savings and Retail Banking Group (ESBG) and the European Association of Co-operative Banks (EACB).

The organisations welcome the Commission’s proposal, announced on 3 June, for a regulation establishing a framework for a European Digital Identity, as well as the high ambitions outlined in the initiative, which represent a positive development in the creation of a future-proof EU single digital market.

A European digital identity will make it possible to offer faster onboarding processes and improve customers’ user experience while ensuring the same level of security as face-to-face onboarding. The ECSAs believe that the proposal will ultimately contribute to facilitating the adoption of digital banking services.

The Commission proposal aims to provide an ecosystem of credentials leveraging a new wallet architecture of several ID solutions, which holds the potential to further increase innovation for the benefit of all European businesses and citizens. The proposed decentralised model fosters personal autonomy and increased personal data protection, giving users control over their identity attributes.

The ECSAs believe the proposal will incentivise the Member States to be more expedient in developing e-ID solutions with a wide scope of usage and potentially much higher adoption rates. It also provides grounds for some attributes to be validated against public sources. This is a welcome development, particularly in processes where a high level of assurance of these attributes is necessary, for example, the KYC process. When acting as relying parties, banks should be aware of the chain of trust in data sharing (including actors involved) and should be able to promptly check the validity of credentials.

Call for banking sector’s involvement in the Toolbox

The ECSAs appreciate the cooperation between the European Institutions, Member States and the private sector. Member States should cooperate in a coordinated manner towards a Common Toolbox. The European digital identity should build on existing (and upcoming) national notified e-ID solutions. The ECSAs believe that the banking sector should also be involved in the development of the Toolbox. Banks can be key partners in drafting a roadmap that ensures successful e-ID adoption given the wide scope of use cases and related implementation costs.

It will be key to establish a common technical architecture that enables the private sector to integrate any digital wallet developed within this regulatory framework without additional technical burden, regardless of where it is issued.

The ECSAs look forward to a Toolbox that is a common, openly available standard that enables the development of multiple, interoperable e-ID solutions and which incentivises private sector schemes to participate.

About the ECSAs e-ID Task Force

The ECSAs e-ID Task Force brings together experts from 36 financial institutions and national banking associations with the goal of expressing a common position for the whole sector on Digital Identity. The Task Force stands ready to further engage on the strategic issue of digital identity with the Commission, the EU co-legislators and a wide range of stakeholders both at European and national level.


The European Credit Sector Associations’ joint response to the Commission’s digital identity consultation



Call for proportionality in ECB’s revisions to options and discretions policies

BRUSSELS, 30 August 2021 – The European Savings and Retail Banking Group (ESBG) submitted on 23 August its response to the European Central Bank (ECB) public consultation on updates to its harmonised policies for exercising the options and discretions allowed under EU law when supervising banks.

The ECB is proposing revisions to its policies primarily to account for legislative changes adopted since they were first published in 2016. Most of the revisions pertain to options and discretions in the application of liquidity requirements. The consultation relates to many aspects of supervision, including permissions for banks seeking to reduce their capital, the treatment of certain exposures in the calculation of the leverage ratio as well as some exemptions from the large exposures limit.

Call for proportionality

In the area of consolidation, ESBG considers that the ECB’s requirement for the application to use a consolidation method other than the equity method is disproportionate. Institutions would have to regularly determine the equivalence method (which they would rather avoid) in order to provide the evidence as required by the ECB. Institutions that have already received exemption approval for the old portfolio as of the reporting date of 31 December 2020 will hardly be able to prove the disproportionate effort of applying the equivalence method in the application for newly acquired participations that are immaterial in terms of amount. Hence, the ECB requirement should be deleted or limited to cases where the sum of the relevant book values reaches a size that is relevant for the banking group.

Also in the area of consolidation, under commercial law (National Generally Accepted Accounting Principles – nGAAP), insignificant participations are generally exempted from the consolidation requirement. In the case of larger institutions, these exemptions soon exceed the EUR 10 million mark, up to which non-inclusion would be allowed even without a case-by-case decision. However, the ECB requirements makes it necessary to apply for individual case decisions for a large number of participations with very low book values in each case. In this respect, we believe that the ECB should not generally classify the case-by-case decision under Article 19(2) CRR as an exceptional case, but should consider it as a regular process.

Regarding liquidity waivers, ESBG believes that when one is granted the respective liquidity reporting requirements should also be waived. The systematic denial of waiving individual liquidity reporting requirements would contradict the objective of the waiver itself and would continue to be a reporting burden for European banks.

In addition, we ask the SSM to allow the utilisation of the effective maturity for internal rating-based foundation (IRB-F). Considering the coming changes regarding the use of internal models, we in fact expect the IRB-F portfolio to expand, particularly for short-term intra-bank exposure. Finally, a narrow definition of cash clearing operations via the ECB Guidelines should be rejected




ESBG welcomes EU Commission's anti-money laundering Package

BRUSSELS, 20 July 2021 – The European Savings and Retail Banking Group (ESBG) welcomes the ambitious AML-CFT package announced today by the European Commission. The ESBG is hopeful that the proposal will strengthen the fight against financial crime and calls for a clear regulation and efficient responsibility sharing between the new EU authority and the national ones.

“The consistent and integrated EU-wide supervision and the risk-based approach of the new AML-CFT regulation are steps in the right direction”, said Joseph Delhaye, Chair of ESBG’s Legal and Retail Committee.

“ESBG members are fully committed to continue fighting money laundering and believe that a clear and practical regulation will be key to make these efforts most effective”, he added.

The proposal for an EU-wide anti-money laundering authority, also part of the package, would be an extraordinary opportunity to ensure consistent supervisory practices and a comprehensive view of current and emerging risks. Nevertheless, overlaps with national authorities must be avoided and centralisation should not come at the cost of efficiency.

“ESBG fully supports harmonised guidance, better coordinated implementation and unified supervisory practices on AML-CFT across the EU”, said WSBI-ESBG Managing Director, Peter Simon.

ESBG is looking forward to strengthening the cooperation between supervisors, national Financial Intelligence Units and the private sector on AML-CFT. Particularly, ESBG members would truly value more feedback from authorities and supervisors regarding reporting activities. Close cooperation among all stakeholders is needed to jointly succeed in the fight against money laundering.


Press contact: Leticia Lozano
Senior Communications Adviser

Tel. +32 2211 1196 l GSM. +32 (0) 476 42 09 53


About ESBG: The European Savings Banking Group (ESBG) has 23 members in 18 countries. As some of its members are national organisations, ESBG represents the interests of over 800 banks working responsibly and closely with their communities and SMEs. Together, ESBG members manage assets worth €5,700 billion, serve 162 million Europeans and employ nearly 660,000 people. ESBG is the regional arm of the WSBI. Both organisations are headquartered in Brussels.


​DORA should not increase operational and financial burden for ESBG members and their clients

BRUSSELS, 9 April 2021​​ – Banks have been among the first companies to install computers and create large data centres. This has contributed to the efficiency of their role of financing the economic activity and intermediating between savers and borrowers. 

As IT architecture has become essential for economic activity, the risk of disruption of this architecture and its consequences for the banks and their clients are of paramount importance. Consider for example the damage done by data breaches, ransomware or service outage of cloud service providers.

The European Savings and Retail Banking Group (ESBG) is aligned with the goal pursued by the Digital Operational Resilience Act (DORA) to create a comprehensive framework for the digital operational resilience of the financial sector in the EU. We welcome the initiative to bring together ICT risks in finance in this legislative proposal that advocates for a level playing field approach. Since the implementation of this framework implies a lot of policy work for the European Supervisory Authorities, we suggest however that the entry into force would be 30 months after the publication of the act.

As for the content of the act, ESBG thinks rules should be adjustable to the different business models in our membership. Smaller financial institutions should be excluded from the framework. We believe that the direct supervision of critical ICT service providers by the ESAs should cover only large, internationally active service providers. Predominantly nationally active critical ICT service providers should be supervised at the national level to avoid incompatibilities with national security laws. We advocate for the creation of a reporting hub at the national level and that the reporting at the EU level is done by the National Competent Authorities. We do not oppose to the creation of an EU hub receiving all reporting but if it is finally set up, it must replace all pre-existing reporting and risks should be properly assessed to ensure the highest levels of cybersecurity.

Finally, the cost of supervising the ICT-providers should not be on the banks or even less on the bank customers’ shoulders. Just as banks rightfully support the cost of financial supervision, ICT providers should bear the cost of their supervision.


Prudential treatment of software investments

In today’s digital era, the current approach of the EU-Legislator to the capital treatment of software assets is a disadvantage in comparison with non-EU banks and FinTech Companies and must be tackled in order to achieve a level playing field, preserve fair competition and advance technological innovations and digitalisation in the financial (banking) sector. Furthermore, banks can be encouraged to foster investment in digital solutions and/or IT systems only if software is not treated differently than other (e.g. tangible) assets and can be non-deductible.

Additionally, we advocate that the exemption rule for avoiding capital deduction should be optional (opt-out) for certain institutions. For institutions that have hardly any software assets capitalised, the cost of implementing the prudential amortisation approach would be disproportionate to the capital savings. The institutions in question should therefore have the option of continuing to deduct the software assets in full from CET 1.

The EBA provides some relief when it comes to the capital treatment of software, but it is still far too restrictive and inefficient in comparison to the US/Swiss Model. The prudential treatment of software assets in Europe should not penalize innovation. At the same time, banks need flexibility in cases where the benefits do not compensate the cost, Therefore, an option to not apply the RTS would be welcomed by certain institutions. This may lead to situations where implementation of the new approach will not be completely supported and continuation of complete deduction of the software from CET 1 would be preferred instead. If the RTS is too burdensome a possibility to opt out and not apply, it may become important for some financial institutions. Another possibly not very well accepted point is the proposed time period for the prudential amortization which is deemed extremely short.

Identified Concerns​

Article 36 (1) (b) CRR 2 states that the decisive criterion for the exception is that the value of software assets is not negatively affected by resolution, insolvency or liquidation. This provision could be interpreted that the exception applies to software assets, where the value does not materially suffer in a crisis. In addition, the Art. 36 (4) CRR 2 mandates EBA to define a threshold below which the software is affected to an extent that it cannot be deducted from the CET 1 Capital. Banks should focus on the turning point from which the software assets would be negatively affected by the resolution, insolvency or liquidation to a degree that the exemption in Art. 36 (1) (b) CRR2 would not be applicable.

We do not see a simplification but rather a complication having another amortization for prudential purposes. In our view, a pragmatic approach is, as stated above, to trust in the work of external auditors and apply the accounting amortization rules for prudential purposes as well.

If regulators want to include a certain margin of conservatism or prudence in the valuation of software assets, an easy-to-implement haircut on top of the accounting amortization would be the most efficient way for implementation.

Why Policymakers Should Act​

Therefore, it needs to be ensured that EBA develops clear criteria to specify the materiality of negative effects on the values, which do not cause prudential concerns, and provides comprehensive guidance on how to perform this assessment in a way that is not unnecessarily burdensome and complex.

Furthermore, we would prefer the RTS to enter into force already on the day following its publication in the OJ (instead of twenty days thereafter; see Article 2 of the Draft RTS on p. 28). This would ensure that banks can apply these provisions as early as possible (as intended by the CRR Quick Fix). Alternatively, we propose a (possibly also retroactive) application of the provisions as of 30 September 2020 and therefore we request such a provision to be added to Article 2.

Finally, in light of the short consultation period as well as the CRR Quick Fix, we would like to express the need to prioritize the work on this RTS and faster finalization of the RTS. Otherwise, the process would counter the efforts of EU legislators and wouldn’t allow for fast relief for banks.


As part of the Risk Reduction Measures (RRM) package adopted by the European legislators, the Capital Requirements Regulation (CRR) has been amended and introduced, among other things, an exemption from the deduction of intangible assets from Common Equity Tier 1 (CET1) items for prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution. In addition, the EBA was mandated to develop draft RTS to specify how this provision shall be applied.

These EBA draft RTS specify the methodology to be adopted by institutions for the purpose of the prudential treatment of software assets. In particular, these draft RTS introduce a prudential treatment based on their amortisation, which is deemed to strike an appropriate balance between the need to maintain a certain margin of conservatism in the treatment of software assets as intangibles, and their relevance from a business and an economic perspective.​