02 December 2008

Council stays with 5 pc retention rate on CRD

Council reached a general approach on the revision of the Capital Requirents Directive establishing colleges of supervisors, harmonising reporting requirements, and introducing closer co-ordination among supervisors.

Council reached a general approach on the revision of the Capital Requirents Directive establishing colleges of supervisors, harmonising reporting requirements, and closer co-ordination among supervisors.

 

The five areas for amendments include:

Supervision of cross-border banking groups:

(a) decisions relating to risk assessment and additional capital requirements would be closely co-ordinated between the supervisor of the parent undertaking and the supervisors of its subsidiaries;

(b) reporting requirements would be harmonised in 2012;

(c) colleges of supervisors, chaired by the supervisor of the parent undertaking, would be established for all cross-border groups;

(d) the role of the Committee of European Banking Supervisors (CEBS) would be strengthened;

(e) the mandate of national supervisory authorities should be given a European dimension.

 

Securitisation practices: Due diligence and transparency obligations imposed on the originators of securitisation operations and on investors would be strengthened. Investors should be able to assess the risks involved in structured products otherwise than solely by means of the rating given by agencies.

Alongside these qualitative requirements, the draft adds one quantitative one – the obligation for originators to retain 5 % of risks transferred or sold to investors on their balance sheet – whose purpose is to increase incentives to conduct better risk assessment.

 

Harmonisation of the classification of banks' own funds and hybrid instruments, with a central role given to the CEBS in ensuring greater uniformity of supervisors' practices in this area.

 

Introduction of rules on liquidity risk management, in particular as regards setting up liquid asset reserves, conducting liquidity stress tests and establishing contingency plans.

 

Large exposures: The text establishes arrangements which place a greater restriction on the extent of exposure to a single counterparty, whatever its nature, including when it is a bank (in all cases, the limit is 25 % of banks' own funds). Within the current framework, concentration limits for bank counterparties are less restrictive than for "undertaking" counterparties, yet the financial crisis has shown that bank counterparties also present a risk of default.

 

The European Parliament's vote is expected next April 2009.

 

General Approach

Further ECOFIN results here.