Response to consultation on Report on the appropriate target level basis for resolution financing arrangements under BRRD
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Also, in our view the report does not take sufficiently into account the burden of changing the target level methodology for the resolution authorities and the institutions. This drawback is mentioned by the EBA but is not assessed. As the build-up phase of the resolution funds has already started, this point is an essential criterion that should be taken into account in the analysis.
Finally we suggest that:
- In option 1 (page 23), the link between RF and DGS should have a better score (at least “++”) and the correlation should receive a “+” weighting;
- In option 2, the last criteria on page 25 should receive “---“ because estimating funding needs on the basis of both bail-inable and not bail-inable liabilities lacks a clear rationale.
Please note also our General Remarks in attached consultation response.
The EBF strongly recommends not to change the reference point at this time. Indeed, the current reference point (covered deposits) is presently the most suitable operationally (as the report suggests it is the best option regarding “dynamic and smoothness of contribution”, “practical consideration” and “simplicity and transparency”). “Covered deposits” as the reference point also allows to have a common basis for the target levels of the resolution financing arrangement and the DGS funds, which makes it easier to raise the optimal level of those funds.
Moreover, regarding the Single Resolution Fund (SRF), a separate review of that basis is provided for under the SRM regulation, but only by 31 December 2018. Having different rules between BRRD and SRM does not seem appropriate.
From an accountancy perspective there are several differences between local GAAPs in the EU, that could lead to major discrepancies on the way to calculate total liabilities and institutions at solo level will be particularly impacted due to taking account of intragroup exposures.
As a consequence, the EBF does not support any of the three recommended options.
Please note General Remarks in attached consultation response.
Please note General Remarks in attached consultation response.
Question 1: Do you think the report is missing any crucial criteria or arguments in favour or against a particular option?
Yes, the report should include a quantitative impact analysis by Member State. Although the ratio is still unknown and will be subject to calibration by the European Commission, it will be the same for all Member States, so each Member State may be impacted differently by this proposed change to the target level basis. The current calculation methodology of the contributions is the result of negotiations between the parties concerned. The impact of any change to this methodology should be duly assessed. We also consider that a quantitative impact analysis on different bank types is missing, which could be done through a segmentation based on (i) an average type of bank, (ii) a higher risk type bank and (iii) a lower risk type bank, as per the calculation of the contributions of banks to resolution financing arrangements. This analysis could be done based on historical data (2014-2015) but should also incorporate a dynamic element using the estimates for future MREL issuance over time to validate over a medium term period the implications of the proposed change.Also, in our view the report does not take sufficiently into account the burden of changing the target level methodology for the resolution authorities and the institutions. This drawback is mentioned by the EBA but is not assessed. As the build-up phase of the resolution funds has already started, this point is an essential criterion that should be taken into account in the analysis.
Finally we suggest that:
- In option 1 (page 23), the link between RF and DGS should have a better score (at least “++”) and the correlation should receive a “+” weighting;
- In option 2, the last criteria on page 25 should receive “---“ because estimating funding needs on the basis of both bail-inable and not bail-inable liabilities lacks a clear rationale.
Please note also our General Remarks in attached consultation response.
Question 2: Do you have a preference for one of the following recommended options?: (a) total liabilities (including own funds), (b) total liabilities excluding own funds, (c) total liabilities excluding own funds less covered deposits.
We consider it important to carry out the analysis proposed above, as the corresponding results could better support any decision on this matter.The EBF strongly recommends not to change the reference point at this time. Indeed, the current reference point (covered deposits) is presently the most suitable operationally (as the report suggests it is the best option regarding “dynamic and smoothness of contribution”, “practical consideration” and “simplicity and transparency”). “Covered deposits” as the reference point also allows to have a common basis for the target levels of the resolution financing arrangement and the DGS funds, which makes it easier to raise the optimal level of those funds.
Moreover, regarding the Single Resolution Fund (SRF), a separate review of that basis is provided for under the SRM regulation, but only by 31 December 2018. Having different rules between BRRD and SRM does not seem appropriate.
From an accountancy perspective there are several differences between local GAAPs in the EU, that could lead to major discrepancies on the way to calculate total liabilities and institutions at solo level will be particularly impacted due to taking account of intragroup exposures.
As a consequence, the EBF does not support any of the three recommended options.
Please note General Remarks in attached consultation response.
Question 3: Is there any other option which would be preferable to those in the recommendation? Please provide the rationale supporting your view.
The EBF believes that the best option is to keep the current reference point (covered deposits) at this stage. As stated in the report, the overall level of the resolution financing arrangements is expected to remain constant even if any change to the basis would occur. The consequences and possible benefits arising from changing the reference point would thus be limited. However, the resulting burden to resolution authorities and banks and relevance and risk of confusion would be disproportionally high.Please note General Remarks in attached consultation response.