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CEBS interim conclusion indicates that market failure does persist to a certain degree in this area.
The consultation paper discusses the prudential objectives that underpin the regulation of large exposures. It suggests that the concept of 'unforeseen event' risk should be considered the main focus of such regulation.
It sets out a number of principles which may be considered appropriate for allowing more sophisticated institutions to use their own internal calculations. For less complex institutions participants' views are requested on achieving convergence across Europe on the conversion factors to be used. A small number of principles have been developed to govern the approach to the treatment of exposures to collective investment schemes, structured finance transactions and other transactions where there is exposure to underlying assets.
Deadline for consultation is 15 August 2007. The Commission expects CEBS to report back by the end of September. A public hearing is planned for 11 July.
Press release
Consultation paper