21 February 2003

EACB response on Commissions CAD document

EACB welcomes the numerous specifities of the Commission’s working document, in particular partial use for sovereigns, consideration of insurance for risk mitigation under all operational risk approaches, which aims at an increased flexibility.

Furthermore there should be clear limits to the discretionary powers of supervisors in the new accord as well as in the European rules. A wide range of discretionary powers of supervisors could lead to reduced entrepreneurial freedom and a uniform approach to banking-management. Furthermore, national supervisory authorities should be able to react flexibly to local particularities.

0.2% Granularity
According to Nr. 43 of the Basel Committee’s technical guidance document, retail loans enjoy a risk weight of only 75%. To be included into a retail portfolio, exposures to individual persons of small businesses must not exceed 0.2% of the overall supervisory retail portfolio and not exceed an absolute threshold of € 1 million (aggregated value). The EACB is of the opinion that only bigger banks, with a retail portfolio of more than € 500 million, could draw the full advantage out of the lower risk weights for retail loans under the standardized approach. On the other hand, banks, whose retail portfolio includes less than 500 loans, could not at all use this advantage.

EACB therefore concludes that the granularity criterion could create problems within the financial industry and threaten the further existence of smaller banks that compete with bigger banks. EACB therefore strongly recommends not to introduce this or any similar rule.

Response to working dokument
Granularity criterion

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