15 June 2007
The Committee of European Banking Supervisors (CEBS) today starts a public consultation on a number of central aspects of the large exposures regime as part of developing its response to the European Commission's call for advice. The consultation is open to all interested parties, including supervised institutions and other market participants.
This consultation paper sets out CEBS' initial views on some of the key concepts which form the basis of the large exposures regime.
In the context of the Commission's better regulation agenda, CEBS puts forward the results of its market failure analysis and regulatory failure analysis. The interim conclusion indicates that market failure does persist to a certain degree in this area. However CEBS is interested in receiving respondents' views on this aspect and in particular in receiving any further input or evidence that stakeholders can offer on this question.
The consultation paper discusses the prudential objectives that underpin the regulation of large exposures. It suggests that the concept of 'unforeseen event' risk should be considered the main focus of such regulation.
The question whether counterparty credit quality should be recognized in the large exposures limits has also been analysed and CEBS' preliminary view is that given the nature of unforeseen event risk counterparty creditworthiness should not be reflected in these limits.
The nature and purpose of the 800% aggregate large exposures limit is also discussed. Market participants' views on the 800% limit are requested.
CEBS has investigated how the calculation of exposure values for the purposes of a large exposures regime can be improved and whether it is possible to achieve closer convergence between institutions' approaches to these calculations for internal purposes and the regulatory requirements.
The consultation paper sets out a number of principles which may be considered appropriate for allowing more sophisticated institutions to use their own internal calculations. For less complex institutions participants' views are requested on achieving convergence across Europe on the conversion factors to be used. A small number of principles have been developed to govern the approach to the treatment of exposures to collective investment schemes, structured finance transactions and other transactions where there is exposure to underlying assets.
CEBS' analysis of third countries' approaches to large exposures suggests that there is no systematic disadvantage to European institutions arising from differences in regulation.
CEBS submits its initial views for public consultation which starts today and runs until 15 August 2007. Comments received will be published on CEBS website unless respondents request otherwise. Please send your comments to the following e-mail address: firstname.lastname@example.org .
The standard consultation period has been shortened as a result of the tight deadline set up by the European Commission. The European Commission expects CEBS to report back on the first part of the Call for advice by the end of September.
When elaborating its views, CEBS has benefited from the input already gathered in the context of its survey of industry practices published here.
Moreover, a public hearing is being organised on 11 July at CEBS premises from 9:30 to 12:30 in order to allow all interested parties to highlight their comments to CEBS.
Franca Rosa Congiu