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Helmut Bauer | 19 September 2006 4
CEBS’ operational structure 2006
Groupe de Contact
Chair Helmut Bauer
BaFin
Capital Requirements
Kerstin af Jochnick
Finansinspektion
Financial Information
Chair Arnoud Vossen
De Nederlandsche Bank
Secretariat
Secretary General
Andrea EnriaBanca d’Italia
Bureau
ChairDanièle Nouy
Commission Bancaire
Vice ChairHelmut Bauer
BaFin
Andreas IttnerOesterreichische
Nationalbank
Kerstin af Jochnick
Finansinspektion
Andrzej ReichNarodowy
Bank Polski
TFCM joint BSC/CEBS task force on crisis management
TFNT on implementationof the Francq report• mediation• delegation etc.
Helmut Bauer | 19 September 2006 5
Internal vs. external agenda
regulatory/supervisory convergence
European Commission
Industry
regulatory advice
enhanced co-operation
external agenda
internal agenda
Helmut Bauer | 19 September 2006 6
External agenda - Advice given
31 August 2006 INDUSTRY PRACTICES ON LARGE EXPOSURES
23 June 2006 CURRENT RULES ON OWN FUNDS AND MARKET TRENDS IN NEW CAPITAL INSTRUMENTS
3 May 2006 CURRENT SUPERVISORY PRACTICES ON LARGE EXPOSURES
30 September 2005 CEBS ADVICE ON DEPOSIT GUARANTEE SCHEMES
1 July 2005 CEBS ADVICE ON E-MONEY
31 May 2005 CEBS ADVICE ON CROSS-BORDER MERGERS AND ACQUISITIONS
21 December 2004 CEBS ADVICE ON PRUDENTIAL FILTERS FOR REGULATORY CAPITAL
28 October 2004 CEBS' WORK ON NATIONAL DISCRETIONS
Helmut Bauer | 19 September 2006 7
External agenda - Pending calls
??? CALL FOR TECHNICAL ADVICE ON LIQUIDITY RISK MANAGEMENT
22 August 2006 CALL FOR TECHNICAL ADVICE ON COMMODITIES BUSINESS
3 August 2006 CALL FOR TECHNICAL ADVICE ON DEFINITION OF OWN FUNDS
8 December 2005 CALL FOR TECHNICAL ADVICE ON DEFINITION OF LARGE EXPOSURES RULES
1 July 2005 CALL FOR TECHNICAL ADVICE ON DEFINITION OF OWN FUNDS
Helmut Bauer | 19 September 2006 8
LE
December 2005: EC call for advice on LEA. Stocktake on the range of supervisory practices
http://www.cebs.org/Advice/LE_report.pdf
B. Industry consultation on market practices – banking and trading books
– smaller and larger firms
C. Analysis of the types of credit risk mitigation products that impact on the calculation of LE
– quantitative and qualitative – banking and trading books– smaller and larger firms
http://www.cebs.org/Advice/LE_industryreport.pdf
two further areas:– analysis of the fundamental prudential principles– recognition of good credit risk management within LE rules
pending
Helmut Bauer | 19 September 2006 9
LE
Methodology:EGCR sub-group
On-line questionnaire and responses http://www.cebs.org/Advice/LE_questionnaire.pdf
http://www.cebs.org/Advice/LE_responses.htmInformal dialogue with experts designated by CEBS consultative panel
Scope:(i) Approaches to measuring and managing singlename concentration
risk
(ii) Approaches to measuring and managing 'other' concentration risk (sectoral, geographic)
(iii) Approaches to calculating large exposures,
(iv) The assessment of connectedness of exposures,
(v) The group-level issues,
(vi) The use of credit risk mitigation techniques to reduce singlename concentration risk
(vii) Internal governance and reporting practices, and
(viii) The respondent's views of the current large exposures regulatory regime.Timeline: Art. 119 CRD requires EC to submit report to EP and Council by 31 December 2007
Helmut Bauer | 19 September 2006 10
LE industry responses
Smaller respondents: • Current regulatory regime is sufficient
Banking groups and larger institutions: • Risk weights for LE regime should be tied to risk weights for capital regime and should take into
account the counterparty creditworthiness and transaction maturity • Gap between internal measurement, management, and reporting and CRD/national regulatory
limits and reporting requirements
Investment management firms, energy trading firms, commodity trading firms, money market funds, factoring companies:
• Questioned appropriateness of applying the LE regime to their business
What else:• Inadequate treatment of derivatives, trading book activities, investment management and fund
operations, other modern financial instruments, and obligors’ creditworthiness • Unduly constraining and inflexible intra-group exposure limits conflicting with internal risk
standards• Lack of harmonisation across EU increasing administrative costs and complicating cross-border
business.
Helmut Bauer | 19 September 2006 11
LE industry expectations
a. Harmonisation of how each member state treats breaches of limits,
b. Preference, at least on the part of large institutions, for integration of the LE scheme into the Pillar 2 framework for concentration risks, without the need for a detailed regulation because it would be fully integrated into the ICAAP process,
c. Should the LE regime be maintained, it ought be more risk-sensitive and more closely aligned with institutions’ internal approaches.
Helmut Bauer | 19 September 2006 12
Own funds
June 2005/August 2006: EC call for advice on own fundsA. Survey of implementation of current rules on own funds across Member
States http://www.cebs.org/OF_part1_rules.pdf
B. Analysis of the capital instruments recently created by the industry http://www.cebs.org/OF_part1.pdf
C. Development of guiding principles behind own funds pending
D. Quantitative analysis of the types of capital held by credit institutions withinMember States pending
Helmut Bauer | 19 September 2006 13
Own funds
Methodology:EGCR set up sub-group (upgraded to joint CEBS/CEIOPS task force)
Questionnaire on rules to CEBS members (A.) on „innovative“ instruments to market participants (B.)
http://www.cebs.org/Advice/OF_q.pdf
Scope:A. Member States national own funds regimes B. innovative instruments
(i) What innovative instruments have reached reasonable market standing? Why? What characteristics do they have in common?
(ii) What are the main market conventions/factors that govern the issues of innovative instruments?
(iii) New trends? What would prevent/favour the development of innovative instruments?
(iv) Characteristics of innovative instruments in the future?
(v) Key industry expectations/concerns regarding supervisors’ approach to innovative instruments?
(vi) Views of market participants regarding what main differences in supervisory approaches have the most important impact on the structure and quality of own funds?
Timeline: Art. 62 CRD requires EC to submit proposal for amendments to EP and Council by 1 January 2009 - deadlines set by EC to CEBS: for A. and B. August 2006, for D. October 2006 to March 2007
Helmut Bauer | 19 September 2006 14
Own Funds - rules
Working in parallel with the Basel Committee is crucial
IAS/IFRS and CEBS prudential filters introduce necessary adjustments to regulatory own funds
Original own funds: following the BCBS Sydney press release of 1998 some member states have included new capital instruments (‘hybrids’) into original own funds - CRD has not been updated – divergences remain
• majority of members apply 15% limit to hybrids with incentives to redeem
• differences are wider regarding the limit on total of hybrid instruments (taking into account also hybrids with incentives to redeem), which can reach 50%
Additional own funds: conditions of eligibility laid down in the CRD have in general been consistently implemented
• Undated vs. dated vs. minimum maturity until first call
• Prior supervisory approval before eligible/before call can be exercised
• Step up subject to formal vs. Informal levels
Supplementary additional own funds:
• amortisation of subordinated loans
Helmut Bauer | 19 September 2006 15
Internal vs. external agenda
regulatory/supervisory convergence
European Commission
Industry
regulatory advice
enhanced co-operation
external agenda
internal agenda
Helmut Bauer | 19 September 2006 16
Internal agenda - 2006 work programme
„2006 will be a year of continuation, in the sense that CEBS’ focus will remain firmly on the CRD, but will also mark a shift of orientation and emphasis,
from design to delivery of a more convergent supervisory framework.“
Helmut Bauer | 19 September 2006 17
Work programme 2006
Finalise guidelines/standards in early 2006 - focus on • Implementation and monitoring of convergence progress and
• “Maintenance” through adjustments and updates in the light of practical experience
High priority on fostering convergence of supervisory practices and a common European supervisory culture
• Training and staff exchange
• Setting up of operational networks for the supervision of EU crossborder banking groups – college/cooperation processes
Helmut Bauer | 19 September 2006 18
Guidelines
4 April 2006 CEBS GUIDELINES ON VALIDATION
25 January 2006 CEBS GUIDELINES ON SUPERVISORY COOPERATION FOR CROSS-BORDER BANKING AND INVESTMENT
FIRM GROUPS
25 January 2006 CEBS GUIDELINES ON SUPERVISORY REVIEW PROCESS
20 January 2006 CEBS GUIDELINES ON THE RECOGNITION OF EXTERNAL CREDIT ASSESSMENT INSTITUTIONS
13 January 2006 CEBS GUIDELINES ON COMMON REPORTING
16 December 2005 CEBS GUIDELINES ON FINANCIAL REPORTING
1 November 2005 CEBS GUIDELINES ON SUPERVISORY DISCLOSURE
21 December 2004 CEBS GUIDELINES ON PRUDENTIAL FILTERS FOR REGULATORY CAPITAL
Helmut Bauer | 19 September 2006 19
Pending CPs
9 June 2006 CONSULTATION PAPER (CP12) on Stress testing under the Supervisory Review Process
6 April 2006 CONSULTATION PAPER (CP2 revised) on Standards on Outsourcing
23 March 2006 CONSULTATION PAPER (CP11) on Technical Aspects of the Management of Interest Rate Risk arising from non Trading Activities and Concentration Risk under the Supervisory Review Process
Helmut Bauer | 19 September 2006 20
Maintenance
Work programme 2006:
CEBS „attention will … increasingly turn to carrying out dynamic “maintenance” of the standards and guidelines through adjustments and updates in the light of practical experience.“
EGCR networks on validation issues („NOVI“) to tackle issues arisinf wrt IRBA and AMA validation.
Helmut Bauer | 19 September 2006 21
Operational networks
Work programme 2006:
„The setting up of operational networks is particularlyimportant with regard to the supervision of EU crossborderbanking groups. The consolidating home and the host supervisors will have to cooperate and coordinate supervisory activities at the operational level.“
Implementing:• Articles 129, 131, 132 CRD and
• CEBS‘ Home/Host guidelines.
Helmut Bauer | 19 September 2006 22
Operational networks
GdC subgroup on operational networking (SON) • to support the design, the setting up and the operation of
college/cooperation processes between consolidating home and host supervisors
• to identify the real life issue and assist the finding pragmatic solutions
• to enhance day-to-day consistent supervision and cooperation between consolidating and host supervisors of cross-border banking groups
– Ensuring consistency of approaches within and across operational networks– Conducting bottom-up surveys of market and supervisory practices
• to operate as an interface between CEBS and industry
1st phase: Focus on 10 large EU banking groups