On February 22, ESBG responded to the European Commission “have your say" consultation on the Banking Package proposal, which transposes the final elements of the Basel III reforms in the EU regulatory framework and pursues other prudential and supervisory objectives.
ESBG supports the application of the output floor at the highest level of consolidation. The envisaged single-stack approach however requires that supervisory powers are more clearly framed and that the arrangements mitigating its impact are of a longer-term nature or permanent. The transitional arrangements for residential real estate, unrated corporates and derivatives should be made permanent or at least phased out based on the actual observation of structural changes in the EU banking market. Moreover, these flexibilizations should be extended also to institutions using the standardised approach to maintain a level playing field.
We recognise the proposal to disregard historical operational losses for all institutions within the calculation of capital requirements for operational risk, meaning that the internal loss multiplier (ILM) is effectively being set equal to one. This is a discretion provided in the Basel framework.
As regard to equity exposures, we support the implementation of a new category with a lower 100% risk weight (RW) for long term strategic equity investments.
Regarding specialised lending, we support the proposal to increase the risk sensitivity for unrated object finance exposures.
With respect to real estate exposures, the proposed requirements for non-income producing real estate should not go beyond the Basel standards. We then support the increased risk sensitivity for acquisition, development and construction (ADC) lending.
The threshold to use the simplified credit valuation adjustment (CVA) method should be aligned with the provision in the Basel framework.
We warn against an excessively restrictive application of the credit conversion factor (CCF) to trade finance instruments and to other exposures.
The proposed centralization of the disclosures is appreciated. Small and non-complex institutions should be exempted from reporting and disclosing requirements in the area of Environmental, Social and Governance (ESG). Further proportionality elements could then be envisaged.
Furthermore, the decision to retain important EU features such as the SME and the Infrastructure supporting factors and the CVA exemptions is appreciated.
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