ESBG (European Savings and Retail Banking Group)
Rue Marie-Thérèse, 11 - B-1000 Brussels
ESBG Transparency Register ID: 8765978796-80
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Thank you for the opportunity to comment on the EBA consultation on draft Regulatory Technical Standards on simplified obligations under Article 4(6) of Directive 2014/59/EU. We would like to share with you the following reflections that we hope will be taken into account by the EBA.
The EBA's press release on the Consultation Paper indicates that after it comes into force the Regulatory Technical Standard (RTS) on the application of simplified obligations under the recovery and resolution planning should replace the already existing guideline on the application of simplified requirements (EBA/GL/2015/16). However, the Consultation Paper itself does not explicitly call for such a modus operandi. ESBG would very much appreciate clarification on this point.
Overall, it should be noted that the approach is quite complicated. In our view, it would be fair to ask if it would be possible to further simplify the procedure. However, we would also like to underline that we do welcome the use of the indicators to identify O-SIIs. In this regard, an assessment of the institutions, that is as uniform as possible, has been achieved. A standardised application, however, should not then refer only to the list of quantitative indicators, but also take into account the size criterion for small institutions (cf. response to question 2, point 2.)
1. Total score
Article 1(2) of the draft states that as part of the quantitative assessment the institution would, by reaching or exceeding a total score of 25 basis points, become ineligible for the simplified obligations. Pursuant to Article 1(3) of the draft, the competent authorities are given the possibility to make a flexible adjustment and to widen the relevant threshold range to between 0 and 105 basis points. Recital 5 explains that raising the relevant total score is possible in countries in which there is a highly concentrated banking market, whereas a reduction of the overall score in countries with a large number of small banks could be considered.
While flexibilisation of the total score certainly goes hand in hand with the selected method of classification that places an individual institution in relation to the sum of all institutions of a country, ESBG nevertheless advocates the introduction of a uniform lower limit for the total score. The possibility of a reduction to 0 will lead to the situation where, in countries with many banks of different sizes, only those institutions of a magnitude under the 0.015% threshold as per Article 1(6) of the draft would be exempted from the wide-ranging obligations of the recovery and resolution regime. At the same time, distortions of competition between individual States cannot be completely ruled out, despite relativisation/flexibilisation. The objective of these RTS, however, is the development of a uniform methodology for the whole European Union. In this regard, we consider it appropriate to set a uniform lower limit that includes the entire classification system and not only the size criterion. ESBG therefore suggests that a total score of at least 25 basis points be set as a lower limit. Here it should be noted that, in markets with highly concentrated banking sectors, the risk of default under otherwise the same conditions would more likely have more pronounced effects on market confidence, while in markets with many participants the opposite would apply. This speaks against any form of even potential preferential treatment of such markets.
2. Size criterion for small institutions
As part of the quantitative assessment, where the total assets of a credit institution do not exceed 0.015% of the total assets of all credit institutions in a Member State, institutions should (pursuant to Article 1(6) of the draft) be excluded from a quantitative assessment. ESBG supports this approach to simplify the procedure. Linking individual institution size to the total assets in a country, however, runs the risk that, because large institutions which impact the level of total assets tend to de-lever, smaller institutions will automatically be subject to assessment because their small size alone makes them systemically unimportant and therefore candidates for simplified recovery planning. One should therefore not set the percentage rate too low or alternatively define a fixed institution size. We consider the stipulated figure of 0.015% as slightly too low. The consequences of this can be well illustrated by using Germany as an example. In Germany, all institutions with total assets in excess of approximately EUR 1.2 billion would need to be assessed. This would not be appropriate, in ESBG's view.
In addition, we do not consider it the best solution to set new thresholds and calculation methods for every simplified application or supervisory requirement. Instead, the objective should be to arrive at a modus operandi that is as uniform as possible. Since the guidelines to identify O-SIIs are invoked, with regard to the indicators and weightings, it makes sense to also apply the simplification threshold of at least 0.02% already contained therein for smaller institutions on grounds of consistency for both requirements. Alternatively, it would also be conceivable to use the absolute thresholds already available as a basis. For example, there is, in the scope of both simplified requirements in Financial Reporting and as part of contribution obligations to the resolution fund, a threshold of EUR 3 billion, which could be applied here accordingly. In order to accommodate special constellations in smaller Member States, this could be combined with a relative threshold, for example: an institute's assets in relation to the Member State's GDP – as in Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (SSM Regulation). Alternatively, the possibility of looking at the provision in the SSM Regulation according to which at least the three largest institutions of a Member State are subject to special requirements with regard to materiality could also be considered.
In principle, ESBG agrees with the list of qualitative criteria in Article 2 of the draft. It should, however, be made clearer that it involves a list with negative criteria. Furthermore, the following aspects are, in our view, to be taken into account in connection with the qualitative assessment:
Should an institution, as part of the qualitative assessment pursuant to Article 1(6) of the draft, be exempted, then a further assessment against the qualitative criteria is justified only by way of exception. It is not apparent that the failure of such a small institution could have the required “significant" negative effect on the financial markets. In this regard, a requirement should be included in Article 2 of the draft that an assessment on the basis of the qualitative criteria for institutions within the meaning of Article 1(6) of the draft should not be automatically conducted.
The BRRD legislator has advocated accommodating institutional protection schemes (IPS). Therefore, institutions that are members of an IPS do not have to draw up a recovery plan for their individual institution. Furthermore, the scope of application of the resolution regime comes into play only when an institutional protection scheme cannot avert the (probable) failure of an institution. Against this background, the above remarks apply to small institutions accordingly. For IPS member institutions, an assessment based on qualitative criteria should be waived, regardless of the size criteria in Art 1(6) of the draft, if there are clearly no negative criteria for an institution.
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