EFR responded to the Commission’s consultation on CRD IV
16 April 2010
EFR calls on the Commission to await the completion of the CEB impact assessments on capital requirements before further steps are taken. If the outcome of the impact assessments confirms the preliminary analysis mentioned above, the proposed rules should be fundamentally reconsidered.
In addition to the issues raised in the response to the Basel Committee, the banking members of the EFR would like to highlight a number of EU specificities which warrant special attention when implementing the Basel rules in the EU. Furthermore, the insurance members of the EFR set out why the proposed banking rules should not as such be applied to the insurance sector.
Specific situation of the EU
• As mentioned in the response to the Basel Committee, preliminary analysis of the proposed capital and liquidity rules reveals a punitive impact on the banking industry, disproportionate to the actual experience of the financial crisis. This would severely hamper the banking industry’s capacity to finance the wider economy, thus threatening economic recovery and growth.
• The effect on credit to the real economy is a particular concern for the EU, as the European economy, in contrast to the US, is primarily financed by credit rather than through capital markets. As for the financial sector, the proposed restrictions on the structure of capital will be more problematic for EU financial institutions, as the nature of capital markets in the EU makes it more difficult for them to raise common equity than for US financial institutions. Therefore, we warmly welcome the Commission’s invitation to CEBS to carry out a European QIS, in addition to the Basel Committee’s exercise, and we stress the importance of this assessment to be thorough and all-encompassing.
• The completion of the CEB impact assessments on capital requirements should be awaited before further steps are taken. If the outcome of the impact assessments confirms the preliminary analysis mentioned above, the proposed rules should be fundamentally reconsidered.
• The EU should await the completion of the Basel process before implementing any new rules. Specificities revealed by the EU impact assessment should be taken into account. To safeguard the competitive position of its financial industry and its economy as a whole, the EU may also want to consider making implementation dependent on real progress towards implementation in other Basel Committee member countries.
• The EU legal framework establishing the internal market allows a more integrated approach than at the global level. With regard to liquidity risk management, the EFR calls for a harmonised cross-border regime, in contrast to the Basel proposal which allows national authorities to set higher levels of minimum liquidity. Furthermore, liquidity ratios should be applied only at the consolidated group level. Similarly, in case a leverage ratio were introduced, it should only be applied at the consolidated level.
• With regard to forward-looking provisioning, to safeguard a global level playing field, the EU should avoid a carve-in or carve-out of the forthcoming IASB standard, to the extent that this standard is technically sound and consistent with third-country rules.
• The specificity of the EU market also appears from the organisation of the market and market players. For instance, the EU does not have institutions such as Fannie Mae and Freddie Mac. These US mortgage corporations together owned or guaranteed more than half of the US mortgage market when they were placed into conservatorship in September 2008. The EU mortgage market is more diversified and proved more stable. Accordingly, no reorganisation of the EU mortgage market is needed and measures aimed to strengthen the US mortgage market should not be applied to the EU.
© EFR - European Financial Services Round Table
