ABBL responded to the Commission consultation on CRD IV – Single rule book will be difficult to achieve
20 April 2010
Concerning liquidity standards, ABBL believes that the proposed metrics fail to recognise the characteristics of two significant banking products and activities: the custodian banks’ activity related to the investment funds, and the mortgage lenders using Covered Bonds as funding instruments.
General comments
The Luxembourg Bankers’ Association (the ABBL) welcomes the opportunity to comment the Commission consultation on possible changes to the CRD, i.e. the CRD IV package. ABBL comments focus on the liquidity standards (Section I), on the leverage ratio (Section III) and on the single rulebook in banking (Section VII).
Section I: Liquidity standards
ABBL thinks that the proposed metrics fail to recognise the operational, legal and economic characteristics of two significant banking products and activities: the custodian banks’ activity related to the investment funds, and the mortgage (or public sector) lenders using Covered Bonds as funding instruments.
The scope of application of the new rules and the treatment of the intra-group transactions are key issues for the ABBL members. In the response to questions 9 and 12, ABBL explains why a majority of Luxembourg subsidiaries act as liquidity providers for their respective groups, and we stress the potential negative consequences on this business model. ABBL believe nevertheless that there is room for improvement and we formulate concrete proposals in order to reconcile the regulators’ and our members’ point of views. Finally, ABBL would welcome clarifications on the mechanism proposed in paragraph 23 of the consultative document, which creates incentives to rely on the group’s central pool of liquidity.
Section III: Leverage ratio
Any measure of leverage should be viewed as an indicator enabling regulators to identify potentially risky areas of the financial sector, both at the micro and at the macro- prudential levels. At the micro-prudential level, as far as banks are concerned, a leverage ratio should be part of the Pillar 2 framework, and the interactions with the new liquidity rules should be considered.
Section VII: Single rulebook
In ABBL views, local specificities make difficult to fully harmonise the prudential rules of the real estate lending: real estate markets have different structures influenced by national practices, and they evolve differently along the national economic cycles. For that reason, ABBL advocate a degree of discretion left to the national supervisors in their assessment of the prudential rules applicable to this activity.
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