10 February 2006

FBE response on CEBS questionnaire on innovative capital instruments

The FBE issued its response on the CEBS questionnaire on innovative capital instruments stating that supervisory differences can give rise to unfair competitive advantages by enabling certain banks to manage their capital position in a more efficient way than others. The FBE is concerned that the supervisors’ approach to innovative instruments could lead to less flexibility, more restrictive rules, and an unlevel playing field.

More homogeneous regulation across EU/Basel countries, greater recognition by the rating agencies, and wider recognition of innovative instruments by regulators would favour the development of innovative instruments.

Other conditions favouring the development of innovative instruments include:

Increasing the possibility for banks to issue innovative instruments directly;

An increase of the current 15% limit;

The possibility to issue instruments such as mandatory convertibles, perpetual instruments with no step-up features and preference shares in currencies other than the ‘accounting’ currency outside the current 15 % limit;

Shorter time for regulatory approval of an impending issue;

Development of a common terminology;

Better standardisation of the provisions of the instruments and homogenisation of the legal documentation in order to increase comparability;

Voice of the European banking sector
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