Guidelines for the joint assessment and joint decision regarding the capital adequacy of cross-border groups

22 December 2010

CEBS has today published the final text of its Guidelines for the joint assessment of the elements covered by the supervisory review and evaluation process and joint decision regarding the capital adequacy of cross-border groups (GL 39). CEBS considers that these Guidelines will be very helpful to EEA supervisory authorities co-operating in supervisory colleges to meet the requirements of the revised Capital Requirements Directive (CRD), as well as for promoting convergent supervisory practices across colleges. The Guidelines should thus significantly foster CEBS's objectives of promoting the effective and efficient functioning of colleges and enhancing the supervision of cross-border banking groups.

Article 129 (3) of the revised CRD requires that the consolidating supervisor and supervisors of subsidiaries involved in the supervision of an EEA cross-border banking group do everything within their power to reach a joint decision on the application of the Pillar 2 provisions related to the Internal Capital Adequacy Assessment Process and to the Supervisory Review and Evaluation Process. The joint decision should cover the adequacy of the consolidated level of own funds held by the group with respect to its financial situation and risk profile, as well as the required level of own funds above the regulatory minimum, applied to each entity within the group. These tasks should be carried out within each college of supervisors established in accordance with the CRD and operating under the framework developed by CEBS (GL34).

CEBS has reviewed these Guidelines following a public consultation and field testing by a number of colleges of supervisors. The Guidelines present practical ways to respond to the requirements in the CRD and move European supervisors towards closer convergence of supervisory practices with regard to the joint decision process, while providing some necessary flexibility for individual colleges. The Guidelines provide concrete guidance on how to cooperate in the risk assessment process and on how to apply the CRD provisions regarding ICAAP, SREP and the prudential measures subject to the joint decision process (Articles 123, 124 and 136 (2) of the CRD). The Guidelines also provide tools to facilitate discussions within the college, leading to a joint assessment and joint decision on the risk-based capital adequacy of the banking group in question.

CEBS regards these Guidelines as an important step towards greater harmonisation of Pillar 2 procedures. The European Banking Authority (EBA), as the body succeeding CEBS, will be strongly committed to making further progress towards harmonisation of supervisory practices in the joint assessment and decision processes as well as promoting the effective and efficient functioning of colleges of supervisors. CEBS believes that more convergence and cooperation, coupled with better exchanges of information and assessments between members of a college, will enhance the quality of supervision of cross-border groups.

Giovanni Carosio, Chairman of CEBS, said:

"The finalisation of these Guidelines is another step in the CEBS's work on strengthening supervisory cooperation and convergence of practices in the field of supervision of cross-border banking groups, which we started in 2006. The work will be continued by the EBA, for which oversight of the functioning of colleges and enforcing best practices of supervision is one of the key priorities. Next year will be a turning point in the supervision of cross-border groups, when decisions on the capital of cross-border groups and their entities will be done jointly. The supervisory community in Europe will be working hard to make this a success story".

As the revised CRD enters into force on 31 December 2010, the relevant members of the colleges for EEA headquartered banking groups will be expected to reach joint decisions on the risk based capital adequacy before the end of 2011. CEBS expects its members to fully implement these Guidelines by 31 March 2011, so as to allow colleges to use the Guidelines in their assessments of cross-border banking groups' capital adequacy.

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