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ESBG addresses concerns on Standardised Approach review to Basel Committee

ESBG addresses concerns on Standardised Approach review to Basel Committee

>> ​​ESBG joins other banking trade bodies in jointly written letter to  the Basel Committee Secretary General on Standardised Approach​ review

>> Text of letter follows


Mr. William Coen
Secretary General of the Basel Committee  on Banking Supervision

Basel Committee on Banking Supervision
Bank for International Settlements
CH-4002 Basel

Cc: Mr. Frank Piersche,l Mr. Caio Ferreira
Co-chairs Task Force Standardised Approaches

Brussels, 31 March 2015

Dear Mr. Coen,

These days the deadline for the consultation on the BCBS consultative document  on the review of the Standardised Approach has ended. The members of the EACB, EBF and ESBG have discussed the Committee's proposals intensively and gladly take the opportunity to respond by detailed technical comment letters. Much of our concern has also been expressed during the hearing of the TFSA in February. We very much appreciated this opportunity for a dialogue.

All in all, we see a need to further develop the concepts, the risk drivers, the calibration and the alignment of most of the suggested amendments to the Standardized Approach. Many of those suggestions will even have an impact far beyond the calculation of banks' regulatory capitaI, i.e. influence the access to finance of SMEs, the access of families to housing, the competitiveness of smaller  institutions, but also  the competitiveness of the banking industry as a whole. Carefully considering such implications will not only require quantitative and qualitative impact studies, but also the feedback of stakeholders and policy makers outside the banking sector. We therefore ask the Committee  to take all the time necessary for the analysis and development of a revised Standardized Approach in order to ensure that it is sound, consistent  and reflecting the interest of all stakeholders.

An overarching element to achieve these aims would be, in our view, that the new standards provide for the sufficient degree  of flexibility. The more  the standard  is building on risk  drivers  which should  reflect  the environment of the banks, the more it must be possible to adjust it to some degree to the actual conditions faced by institutions. We therefore believe that a new Standardized Approach should be a "Giobal Standard with local calibration", allowing regulators  to reflect particularities of the relevant  market, the specific legal environment  (e.g.  mortgage or other relevant external  factors (e.g. granularity criterion for  retail exposures), while nevertheless delivering principles  for world-wide application, to be respected by all banks, in full transparency, enhancing risk sensitivity.

We would also like to express our strong concerns and question the proposal to abandon external ratings as the basis for determining the risk weight  for exposures to  banks. Rating information is easy to obtain and generally strongly associated with the risk of a bank exposure. lt is also adapted to local circumstances  and contains much more  information on credit  risk compared  to the proposed risk indicators. We believe that external credit ratings give the most comprehensive information about the inherent risk in bank exposures and exposures to large corporates. Even during the financial crisis, external ratings in these exposure classes have proven to be a reliable indicator. Especially in times when certain regulators (e.g. in the EU) are trying to make access to capitaI markets for SMEs easier, ratings can still play an important role, and regulators should not signal contrasting incentives. On the  other hand we agree that institutions should never solely rely on external ratings intheir credit approval and risk management processes.

The intention of the Committee to  develop a Standardized  Approach, which is to be a basis for  the operations of all banks in all countries, as it is currently the case in the EU, should also set limits to  the complexity of the new rules. The Standardized Approach should not be designed with the aim to serve as a backstop for IRB banks. The only aim should be to improve the current  standardised approach if and where proper testing justifies it. We therefore strongly support  the view of the Committee that all banks should be able to implement the standard without undue burden. In fact, we see no evidence of any significant deficits of the standardized approach that would justify to replace it by the risk drivers approach.

Finally, we would  like to  express our appreciation for the intention of the Committee that "...increasing overall capital requirements under the standardized not an objective of the Committee;...". Other recent measures, especially Basel III, are ensuring a higher level and higher quality of capitaI as well as a relevant capital backstop (leverage ratio). However, we have doubts that the new proposals, as currently calibrated, would in fact meet the Committee's objective and remain  neutral. For the  largest exposure categories (e.g. banks, corporate, real estate) we would rather expect capital requirements to increase considerably, and even more if the capitaI floors push up the minimum requirement for IRB institutions. We would therefore ask the Committee to review the calibration and to conduct a second consultation in the light of a proper quantitative and qualitative impact study.

Especially in the current context, when banks have to play an important role in financing the economy and creating growth, we see an urgent need for stability in regulation, to allow a meaningful implementation, and stabie capital requirements.

We would be pleased to continue the dialogue with you on this matter. 

Yours sincerely,

​Signed by: 

EACB Managing Director Hervé Guider, EBF Managing Director Wim Meijs, and ESBG Mananging Director Chris De Noose


Basel III; Standardization; Regulation; Supervision