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Finalising Basel III

Finalising Basel III


​​​​​​​​ESBG responds to European Commission exploratory consultation

>> ​Read the full response

BRUSSELS, 16 April 2018 –​ Europe's savings and retail banks association ESBG commented on 12 April on the Commission exploratory consultation on the finalised Basel III framework. Welcoming the chance to respond, the association said that given the complexity of revisions to the framework, it would encourage the Commission to maintain an open and continued exchange with the industry.

Regarding the adaption of the international Basel standards in European law, ESBG sees it is essential that the law reflects national and European particularities. Most importantly, ESBG argues that its implementation in the EU regulatory framework should reflect the proportionality principle taking into consideration the nature, scale and complexity of the activities of European credit institutions. The paper also outlines other areas in the response:

  • ​Regarding the standardised approach for credit risk (SA-CR), following the Basel Committee's revisions, capital requirements seem to clearly increase altogether, in particular in the bank and corporate exposure classes, for exposures secured by real estate and for off-balance sheet exposures. This is worrying in particular because banks can no longer counteract this tightening of existing regulations by means of allocative adjustments to the credit portfolio, as all exposure classes are affected.

  • On internal ratings-based (IRB) approaches for credit risk, ESBG supports the aim of reducing unjustified variability in RWAs but doesn't share the Basel Committee approach, as in the association's opinion it lacks risk sensitivity: Internal models have an important role in risk management and capital adequacy, and restricting their use is not the right approach for us.        

  • ​Due to this, and in the current context of increasing capital requirements and reduced interest rates, ESBG believes that it is of paramount importance for the improvement of the level playing field that the development of internal models is encouraged and the validation process is not subject to any kind of limitation that prevent credit institutions now using a standardized approach to move forward towards an internal models one.

  • In ESBG's view, the basic approach for calculating capital requirements for credit valuation adjustment (CVA) risk is especially burdensome due to the considerable weight increase compared to the current standard method) and representing a loss of granularity with respect to the credit quality of the "non-investment grade".

  • On Basel Committee's revisions to the operational risk framework, ESBG believes that the standardised measurement approach (SMA) may represent a huge increase in capital requirements. For some of our members which were not previously using the advanced measurement approach (AMA) models this could imply an increase above 40%.

  • Finally, with regard to the output floor, ESBG believes that introducing capital floors for IRB models based on the output of the standardised framework, may limit the incentives of credit institutions to continue developing and implementing new internal models.

>> ​Read the full response​​

Basel III; Standardization; Capital Requirements Directive and Regulation