27 August 2012

EBF response to the BCBS consultation on a framework for dealing with domestic systemically important banks (D-SIBs)

The EBF welcomes the opportunity to share with the Basel Committee (BCBS) the views of the European banking sector on the proposal for a framework for dealing with domestic systemically important banks (D-SIBs).

It is understood that international policy-makers intend to complete the work initiated in 2011 with the framework for global systemically important banks (G-SIBs) by putting forward a similar one for D-SIBs. It is therefore imperative to repeat the EBF advocacy towards the G-SIBs framework as expressed in EBF response to the BCBS consultation run in July and August of 2011. On that occasion, the EBF acknowledged the merit of developing an early and simple G-SIB framework, however it should be adjusted so as to ensure that it portrays to a greater extent the genuine sources of systemic risk. This remains an opportunity for further improvement.

The EBF considers that the most effective policy tools to address the threats posed by systemic risk are improved supervision and resolution frameworks. Additional loss absorbency, though swifter to implement, can only be a complementary measure. It should be recalled that it implies a significant cost in terms of economic growth. For this reason, the EBF would like to remark that the currently proposed D-SIB framework should not replace nor take priority over the mostly needed improvements in supervision and resolution tools. Furthermore, the methodology proposed to identify and address D-SIBs should be subject to an informed and structured impact assessment.

Against this background, the EBF recommends that the extension of the SIB framework to domestic institutions should be designed with respect for the following principles:

• To put the proposed measures in the context of a wider range of policy tools for systemic risk prevention in which SIB buffers are just a complementary measure that does not entirely tackle the causes of systemic risk.
• To keep the capital buffers under a rather limited level.
• To avoid as much as possible complexity, wrong incentives and divergences that could only give rise to uneven playing field situations.

This EBF response puts forward opportunities for improvement of the proposed framework so that it contributes to restoring confidence in the banking sector whilst minimising the costs associated with its implementation.

Of a particular interest to the EBF is the interaction between the systemic risk framework proposed by the Basel Committee and the proposals that European policy-makers have included in the Capital Requirements Regulation (CRR) and Directive (CRD IV) underway. In this respect, the EU is already foreseeing very ambitious additional measures for SIFIs. It would not be acceptable that both regimes, the global and the European, be additive and expressed in different terms. Consistency with the global prudential framework is essential for a coherent systemic risk framework.

Last but not least, the EBF recalls that the higher degree of harmonisation of the regulatory environment and supranational institutional supervisory framework in the EU (i.e. the European System of Financial Supervisors) should be taken into account in the rules governing the systemic risk framework. All the more considering the recent statement endorsed by euro area governments in support of the European Banking Union at the Summit on 28-29 June, 2012.

In this respect, a clear definition of the requirements to be fulfilled for a set of countries to be considered as an integrated area (e.g. with respect to resolution frameworks, supervisory mechanisms, pooled recovery and resolution funds and deposit insurance schemes) should be spelled out ex-ante in detail by the BCBS for a fair application of this framework.

Full response

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