CEBS is today publishing its first peer review report on its members’ compliance with CEBS’s Guidelines on the validation of the Advanced Measurement (AMA) and Internal Ratings Based (IRB) approaches used by banks to calculate capital requirements.
The peer review report concluded that supervisory authorities have generally complied with the Guidelines’ provisions in a practical and sensible manner with regards to home-host cooperation. The review highlighted a few cases of non compliance by members acting as consolidating supervisors. Two members did not always provide adequate information to relevant host supervisors on the facts that formed the basis for the decision. In addition, one member reported that it was not able to reach joint decisions in three validation cases, and three other supervisors reported that in some cases they were not able to reach joint decisions within the indicated six-month deadline. The extension needed in those cases was generally accepted by the relevant host supervisors and the institutions concerned as being the most pragmatic approach to providing them with more time to comment, and in some cases for the institutions to provide more information. In general, the time needed to reach a joint decision appeared to depend strongly on the number of supervisors involved, and the six-month deadline too short for large cross-border groups.
As the validation cases under review were the first ones, some of the report’s conclusions may not hold true for subsequent cases.
On the basis of this first peer review exercise, CEBS concluded that detailed follow-up guidance is needed on a number of points to ensure convergence of practices in the implementation of the Guidelines. Such guidance could, for example, set a maximum period of time for checking the completeness of an application and elaborate on the impact of the timelines for national transposition of a joint decision and the six-month deadline for making a decision.
Finally, while the peer review mechanism proved to be a useful tool, the methodology needs refinement to enable the Review Panel to drill down into supervisory processes and practices, which may not be covered by principles-based guidelines. Specific proposals will be discussed by CEBS in June 2009, in particular regarding the design of the assessment criteria and the resulting questionnaire, as well as the conduct of the review by peers.
CEBS’s “Review Panel” is a peer pressure group, whose objectives and processes are detailed in a Protocol. Its objectives are to encourage supervisory convergence within the European Economic Area by assessing CEBS members’s compliance of supervisory provisions set out in Community legislation, CEBS Guidelines, and other CEBS document. As laid out in the peer review Methodology, the Review Panel relies on self-assessments conducted by CEBS members and on independent reviews conducted by its members. Under the ‘comply or explain’ approach, a member that has not implemented a given supervisory provision or practice is expected to explain why it has not done so. The Review Panel is chaired by CEBS Vice-Chair Mr Giovanni Carosio, Member of the Board of the Banca d’Italia.