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Ref. Ares(2018)2646443 - 23/05/2018
17th March 2009
Issue N° 10
In This Issue
De Larosière High level Group ponders the future
of financial supervision in the EU
•
De Larosière report On February 25th, the High Level Group chaired by Mr de Larosière
•
G20
published its report on financial supervision in the EU. This document
•
represents a comprehensive assessment of possible policy responses to the
CRD Amendments
crisis related to the regulatory framework, corporate governance, financial
•
Comitology
supervision, and crisis management both within the EU and, to some extent
•
also at a global level.
Capital
Requirements
The report contains 31 recommendations which hold the prospect of
Directive:
challenging projects over the next few years which might materially change
considering further the current EU supervisory and crisis management arrangements.
changes
•
CRD – future
The key issues highlighted in the report have fed in
to the Commission's
changes
Communication published on March 4th and which will be further discussed
during March by the EFC, the ECOFIN and EU Council. It will provide a basis
•
Home/host branch for the EU position that will be presented at the G20 meeting in London on
supervision
2nd April.
•
Procyclicality
Many of the topics included in the report already fall within the EBC's
•
Suplementary
mandate, and have been discussed during previous meetings. These topics
metric in banking will form the basis of the EBC's future workplan.
regulation
•
Deposit Guarantee
Schemes
G20: preparations for the 2nd April Leaders
•
Early Intervention
meeting
The 15 November 2008 meeting of G20 Leaders and Finance Ministers was
a historic event, bringing together advanced and emerging economies at the
highest level to determine how to address the global financial and economic
crisis.
All leaders agreed that urgent action was needed in a number of areas, and
that this action needed to progress in the next few months, through a
process determined and led by G20 Finance Ministers. In light of worsening
economic prospects, closer macroeconomic cooperation to restore growth in
a broad range of countries, while avoiding negative spillovers, will be a
central theme for the
next G20 Leaders in London on April 2nd.
Following the November meeting, the following work streams were
established: Enhancing sound regulation and strengthening transparency
(WG1); Reinforcing international cooperation and promoting integrity in
Prepared by:
financial markets (WG2); Reforming the IMF (WG3); Reforming the World
Secretariat of the European Bank and multilateral development banks (MDBs) (WG4); macroeconomic
Banking Committee
policy response and framework (which is being addressed directly by G20
Finance Ministers, Central Bank Governors and Deputies)
Contact:
Tobias Mackie
The European Commission represents the EU together with the CZ
Secretary to the EBC
Presidency. A G20 Finance Deputies meeting was held in London on
Tel. +32 2 296 1661
February 1st. Another meeting will take place on March 12th-13th to prepare
E-mail:
the G-20 Finance Ministers and Central Bank Governors Meeting, who will
xxxxxx.xxxxxx@xx.xxxxxx.xx
discuss the final report before the G20 Leaders meeting on April 2nd.
Capital Requirements Directive: State of play
in the adoption process for an amending
Directive
The Commission adopted its proposal to amend the CRD (on large
exposures, colleges, hybrid capital, liquidity risk management, and
securitisation) in October 2008. After political agreement was reached
in Council in early December 2008, discussions on the CRD review have
continued in the early part of 2009 in the European Parliament. On 2nd
and 11th February, the ECON Committee discussed 285 EP
amendments to the CRD in view of a vote in ECON on 9th March. 5
"Trilogue" meetings (bringing together Commission, Parliament and
Council) are due to take place after the vote in ECON, in addition to
financial attachés meetings. The final vote in Plenary is expected to
take place in April (21 - 23).
Capital Requirements Directive: State of play
of the comitology amendments to the Capital
Requirements Directive
− Comitology Amendments to Directive 2006/48/EC
By resolution of 16 December 2008, the European Parliament opposed
the draft comitology Directive amending Directive 2006/48. The
resolution states that the EP objects only to a specific provision of the
draft Directive which lays down disclosure requirements for the
External Credit Assessment Institutions (ECAIs) while it supports the
remaining 46 amendments provided by the draft measure.
In its resolution, the EP has requested the Commission to remove this
provision from the draft comitology Directive and to shift it either to the
proposal for a Regulation on Credit Rating Agencies or to the proposal
for a review of Directives 2006/48/EC and 2006/49/EC under the co-
decision procedure.
Further to the European Parliament's opposition, the Commission has
decided to launch a new Comitology procedure on a new text which
takes into account the requests expressed by the European Parliament
in its resolution.
On 20th February 2009, the Commission submitted a revised draft
Commission Directive amending Directive 2006/48/EC for opinion to
the EBC. This new text is identical to the text approved by the EBC on
24 September 2008, except for the provision in Point 3 of the draft
directive, laying down the disclosure requirements for the ECAIs, which
has been removed.
If the new draft is approved by the EBC, the Commission will re-submit
the new draft measure to the European Parliament and Council for their
scrutiny in accordance with Decision 1999/468.
The substance of the ECAIs provision has been taken up into an
amendment1 proposed by J.P. Gauzès, MEP to the pending co-decision
proposal for a review of the CRD. This amendment is now part of the
package of amendments proposed by the Parliament and currently
under the Commission's examination that will be discussed in the
pending negotiations.
− Comitology Amendments to Directive 2006/49/EC
The European Parliament's scrutiny period expired on 9 January 2009
and the EP has not made any comment on this draft measure.
Therefore the adoption of this draft Commission Directive can proceed
according to plan. A written procedure for the adoption of this Directive
by the Commission will be launched shortly.
Capital Requirements Directive: considering
further changes
It is already apparent, as the process to amend the CRD which was
initiated last October draws to a successful conclusion, further changes
to the CRD will be necessary.
The EBC has been remained attentive to the evolving need for such
changes and held further discussions at its March meeting. In
particular, consideration is being given to further changes in the
context of the trading book, securitisation and national options and
discretions. It will be important to ensure consistency with ongoing
discussions in European and international fora - in particular with
respect to the EBC discussions about supplementary ratios (see below).
Changes to the trading book and securitisation rules could be built
around recent proposals by the Basel Committee. Capital requirements
for the trading book have proved inadequate over the course of the
past two years and require strengthening. Capital requirements for
complex securitisations of securitisations also need to be strengthened,
as these instruments turned out to be particularly sensitive to
correlated losses. With regard to national options and discretions, work
by CEBS and further discussions in the CRDTG point the way towards
substantial progress in this area.
At its meeting, the EBC gave discussed the level of ambition that co-
legislators should seek to achieve when narrowing the options and
discretions for national implementation.
Regulatory issues: Home/host supervision of
branches
In light of the financial crisis, the EBC discussed the robustness of
home/host arrangements for the supervision of credit institution with
branches established in another Member State. The Commission
provided an explanation of the existing CRD requirements regarding
information sharing and powers of intervention for host supervisors in
emergency situations.
The Commission will perform a transposition check of those provisions
to ensure that host authorities are able to exercise the powers currently
provided for in the CRD, and that host Member States have sufficient
confidence in the robustness of the existing arrangements. In the
context of the forthcoming White Paper on early intervention, it is
intended to further reflect on the need to entrust authorities with
further powers to act at an earlier stage – before emergency situations
arise.
Regulatory issues: working towards a
Commission report on Procyclicality by end
2009
The Basel II framework (transposed by the Capital Requirement
Directive) aims to enhance financial stability by making capital
requirements more risk sensitive. As a consequence, capital
requirements are broadly expected to vary over time – in line with the
economic cycle. The current crisis has prompted questions as to
whether and to what extent the variation in regulatory capital
exacerbates the economic cycle – or, in other words, whether the new
requirements produce "
Pro-cyclical" effects. CEBS and the BSC have set
up a joint task force to pull together empirical analysis and look at long
term observation periods.
While there is a clear urgency to devise regulatory responses to
improve the financial regulatory framework in order to re-establish
confidence, this work is not expected to lead to measures which
provide a solution paving the way out of the current crisis. Over the
course of this crisis, many banks have remained well above the
regulatory minimum capital requirements even though they had to be
re-capitalised by governments because of market fears that their
capital was not adequate. In the depths of a crisis it is in any case too
late to apply counter-procyclical measures, as any such measures
would require banks to build up buffers or provisions during the good
times and would not be appropriate at this juncture.
At this stage, there may be various ways to mitigate the pro-cyclicality
of regulatory capital. Examples include: strengthening the through-the-
cycle orientation of minimum capital requirements; basing minimum
capital requirements on smoothed outputs of financial institutions'
internal risk models; adding a countercyclical "macro-prudential
overlay" to the minimum requirements based on measures on the
financial cycle. Adjustments could be based on mandatory rules, or else
on a more discretionary basis. They could be hardwired to the minima
(pillar 1) or encouraged by the supervisory process (pillar 2).
Depending on their specific features, the arrangements would impact
differently.
The current crisis has also prompted a discussion about the relationship
between prudential and accounting rules. The European Council has
called for a speeding up of work on the international regulation of
capital and for a general consideration of the effects of fair value
accounting rules on financial institutions and markets, including their
procyclical effects. A special working group set up by the EFC to look at
Procyclicality has been paying special attention to the concept of
"dynamic provisioning", and to how strong provisioning and flexible
counter-cyclical buffers could be achieved, both within the prudential
framework and by way of financial reporting. The Working Group
believes that these issues deserve an in-depth discussion within the
international organisations concerned, mainly the Basel Committee and
the IASB.
The ongoing work on pro-cyclicality will feed into the Commission's first
biennial report to the Council and the EP on pro-cyclicality (under Art
156 of the CRD), which is due to be to be delivered by end 2009.
Regulatory issues: considering a new
supplementary metric in banking regulation
One of the lessons drawn from the current crisis is that size and
leverage of financial firms might be better captured. The European
Commission has clearly expressed its view - in the G-20 and in the G-
10 Basel Committee, that a new and simple metric should be designed
to supplement the present risk-based capital requirements in the
Capital Requirements Directive (CRD). This work is part of the
programme of measures that are underway to improve the entire
capital framework (trading book, securitisation, liquidity, etc).
The possible introduction of any supplementary metric will need to be
properly assessed with respect at least to the three important policy
issues: (i) its objectives; (ii) its design and calibration; (iii) its role in
supervision and crisis management.
The European Banking Committee is in the process of conducting an
overview of the key policy issues at stake and possible options that
could be explored for a new metric.
Deposit Guarantee Schemes: Commission
considers next steps following the approval
of a new Directive
−
Proposal amending Directive 94/19/EC:
The European Parliament and Council have now approved the
Commission's proposal of October 2008 to amend the Directive on
Deposit Guarantee Schemes. The main changes will be:
• An increase of the minimum coverage level from €20 000 to €
50 000 by end of June 2009 (co-insurance to be abandoned)
• A further increase to a fixed level of €100 000 by end 2010
unless the Commission concludes that this would be
inappropriate
• A reduction of the time taken to payout to depositors from 3-9
months to 4-6 weeks by end 2010.
The Commission will also be required to prepare a report by end 2009
on a variety of issues (in addition to the increase to €100 000), such as
the harmonisation of funding mechanisms, operational issues (such as
the payout delay), and the feasibility of a pan-EU Scheme, and to
submit legislative proposals if appropriate (see below). The text of
Directive 2009/14/EC was published in the Official Journal on 13 March
2009.
−
Commission Report on Deposit Guarantee Schemes
The Commission's report will address the following issues:
• Harmonisation of the funding mechanisms of deposit-
guarantee schemes and the benefits and costs of such
harmonisation;
• Possible models for introducing risk-based contributions;
• Benefits and costs of a possible introduction of a Community
deposit-guarantee scheme;
• The appropriateness of and modalities for providing a full
coverage for certain temporarily increased account balances;
• Effectiveness and delays of the payout procedures assessing
whether further reduction could be implemented;
• The link between deposit guarantee schemes and alternative
means for reimbursing depositors, such as emergency pay out
mechanisms;
• The harmonisation of the scope of products and depositors
covered, including the specific needs of SMEs and local
authorities;
• The impact of diverging legislations as regards set-off, where a
depositor’s credit is balanced against its debts, on the
efficiency of the system and possible distortions, taking into
account cross-border winding-up;
• Transparency and information available to depositors (i.e.
their awareness about the functioning and the features of
existing schemes);
• The effectiveness of cross-border cooperation between deposit
guarantee schemes.
In order to help prepare this report, the Commission will be supported
by its Joint Research Centre, which has been tasked with obtaining (via
a detailed questionnaire which has been sent to national schemes)
information and preparing input on specific questions.
A public consultation on these issues will be launched in spring 2009.
Additional input will be sought via an expert Working Group which will
first meet in July to discuss specific issues with Member States.
Early Intervention: Commission prepares a
White Paper
Recent events have provided clear evidence that in cross-border crisis
situations the defence of national interests prevails over cooperative
solutions - despite the putting in place in 2008 of an EU-wide
Memorandum of Understanding setting out arrangements for
cooperation during a crisis. The importance of introducing effective
crisis management arrangements and ensuring their interoperability
across borders has been recognised both in the de Larosière report and
in the Commission's response.
The Commission has established an expert working group which is
helping in the preparation of a White Paper due by June 2009. The
White Paper will look at developing an overall EU framework for crisis
intervention to deal swiftly and effectively with an ailing bank.
The White Paper will need to consider ways of overcoming national
instincts and encouraging win-win cooperative solutions, and will in
particular need to consider how to address the current misaligned
incentives which impede effective cooperation across borders.
In particular, a new framework will need to deliver in a number of
important areas:
− empowering authorities to allow asset transferability (and provide
alternative solutions to ring fencing) and create cooperative
financing possibilities.
− addressing the need for a common approach to
pre-intervention, by
proposing the development of a common assessment system,
enhancement of equivalent and compatible supervisory tools, and
empowering supervisors to allow asset transferability subject to
certain conditions.
− seeking to develop a common approach to
intervention, by ensuring
that certain reorganization powers (e.g. bridge banks, partial
transfers of banking business, good bank/bad bank, appointment of
special administrator,..) are available options in all MS (this may
need to entail special rules for dealing with systemic powers which
provide derogations from e.g. company law, etc). Such enhanced
powers which might impact the rights of certain stakeholders
(shareholders, creditors) would need to be offset with appropriate
safeguards.
− addressing coordination between authorities – in particular through
the enhancement of the 2008 MoU with legal obligations on alert and
consultation between authorities both domestically and cross-border.
− proposing the development of financing arrangements to underpin
cross-border cooperation, by for example converging rules on
funding of deposit guarantee schemes and developing their proactive
use beyond the paybox function.
Document Outline