“The Commission is aware of the "demands from" among others Danish banks and will assess this strictly on the basis of the relevant articles in the Regulation before proceeding to the formal adoption of the standard", Chantal Hughes, a spokeswoman for the commission, said in an e-mailed response to questions.
Scandinavia’s banks, among the best-capitalised in Europe, argue the EBA’s approach doesn’t reflect the Capital Requirements Regulation approved by the European Parliament earlier this year and ignores the safety of their mortgage assets. The mostly AAA-rated covered bonds that back the mortgages drew investors seeking refuge during Europe’s debt crisis, driving down interest rates and underpinning borrowing in the Nordic region.
“We would appreciate a rapid conclusion", though “we understand fully that, with such a big file, this will take some time", Erik Johansen, head of economics and capital markets at Oslo-based Finance Norway, said by phone. “Our position is very clear and they know about our view on this.”
Scandinavia’s financial industry, backed by the European Banking Federation in Brussels, had appealed the EBA’s proposal, and is urging the commission to reject it. The commission now has until the end of November to decide whether to approve the EBA’s proposal. It can endorse all or part of the draft or require the EBA to make changes.
“We are confident that the European Commission and the EBA now will have time to reach an agreement on the reporting of the Basel 1 floor which will be fully consistent” with the CRR, Michael Friis, head of prudential regulation at the Danish Bankers' Association, said by e-mail. That will ensure “a solid legal basis for a harmonised reporting” which “is important for the functioning of a single rule book for European banks", he said.
At issue is how to interpret a floor on capital requirements designed to prevent banks underestimating balance sheet risk. Under Basel transition rules that apply until 2018, banks are free to use an internal ratings model as long as they don’t breach a given floor.
Yet countries have employed different methods for arriving at the floor. According to the draft EBA reporting requirement, the floor should be interpreted as a lower limit on risk-weighted assets, giving lenders less leeway to calculate their own loss probabilities. That contradicts rules given to European banks under the Capital Requirements Regulation, according to Johan Hansing, chief economist at the Swedish Bankers’ Association.
If the commission accepts the EBA’s proposal, it would be “a major problem for Nordic banks,” said Elina Salminen, an analyst at the Helsinki-based Federation of Finnish Financial Services.
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