Response to consultation on amending Guidelines on the appropriate subsets of exposures in the application of the systemic risk buffer
Q1. Do you agree that the proposed use of more granular economic activity classifications (including NACE level 2 or more granular levels where necessary) is appropriate and suffi-cient to enable authorities to effectively target exposures subject to climate transition risk while limiting unintended consequences for transition financing? If not, please explain and suggest alternative approaches or safeguards.
No, we disagree. NACE codes primarily cover economic activities or sectors that can only be linked to a specific climate risk in exceptional cases. This classification appears unsuitable, particularly for large conglomerates.
Q3. Do you consider the proposed extension of geographical granularity (including the use of LAU level) appropriate for identifying exposures subject to climate physical risks? Please comment on the relevance of the proposal and potential implementation challenges, as well as data availability and possible proxies that relevant authorities could consider.
We are not in a position to provide a comprehensive assessment of this matter and, in any case, fundamentally oppose any amendment to EBA/GL/2020/13 (see our comments on Question 6 below). As a precautionary measure, however, we urge that any amendments to EBA/GL/2020/13 should not result—even indirectly—in new obligations for credit institutions. In particular, as is well known, the scope of credit institutions’ reporting obligations is already too extensive and should be reduced. Additional requirements to maintain further data not previously collected and to report it on a regular or even ad hoc basis must be avoided at all costs, as they would contradict the goal of simplifying banking supervisory law and reducing bureaucracy.
Furthermore, we would like to point out that greater granularity in geographic information generally allows only extremely limited conclusions to be drawn regarding physical climate risks, such as river flooding or storm surges. The risks associated with a wide range of physical climate risks (e.g., storms) cannot be determined solely through higher geographic granularity. Institutions must, moreover, determine individually to what extent their risk positions are affected by climate risks.
Analyzing data for local climate risks at the LAU level requires consistently more granular data maintenance, which is uneconomical from a cost-benefit perspective, especially since a company’s headquarters says nothing about the location of its economic activities. Even recording the locations of branch offices does not necessarily reveal the location of the production facilities exposed to climate risk.
Q4. Do you agree with the proposed flexibility to combine different dimensions (e.g. type of counterparty, economic activity, geographic area, type of collateral) when defining subsets of sectoral exposures for SyRB purposes? In your view, does this flexibility sufficiently sup-port risk sensitivity while preserving transparency and comparability across jurisdictions?
At first glance, using a wide variety of dimensions may seem more appropriate given the risks involved, but it would also lead to a more diverse and frequent use of the SyRB tool. However, the more specific the selection of certain risks, the less suitable the SyRB is as a capital add-on, since a low level of exposure results in virtually no actual impact on the capital ratio. The effort involved in determining and reporting many specific buffers, along with the ongoing monitoring of materiality thresholds, appears disproportionately high—especially when the impact is low.
The management of such specific risks should be left to the institutions within their internal risk management frameworks. This is, however, already subject to supervisory oversight.
Q6. Do you have any additional comments on these draft Guidelines amending EBA/GL/2020/13 on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer?
We believe that, as a purely European instrument that is not rooted in the Basel framework and lacks international harmonization, the SyRB undermines the competitiveness of EU banks. Furthermore, there is a risk that the activation of the SyRB would result in redundancies and overlaps with other capital requirements (P1, P2, G-SII, O-SII and CCyB), thereby unnecessarily complicating the capital framework without making a clear additional contribution to financial stability. Introducing additional guidance on the SyRB risks would lead to an unnecessary overlap with existing buffers and would add complexity without delivering a clear benefit for financial stability. Instead, the SyRB should be removed from the EU’s macroprudential framework, as already demanded repeatedly.
Additionally, the macroprudential framework should not be used to address emerging risks such as ESG, geopolitical or cybersecurity risks, as the Systemic Risk Buffer is not an agile instrument capable of responding effectively to rapidly evolving challenges. The macroprudential framework is unsuitable for clearly identifying risk exposures associated with climate risks. Furthermore, extending the SyRB to cover climate risks makes its application arbitrary. Even the EBA’s efforts to supplement the guidelines with granular criteria do nothing to change this. This would merely make the capital buffer framework more complex.
The current prudential architecture already provides comprehensive tools under Pillar 1 and Pillar 2, including the Supervisory Review and Evaluation Process (SREP), enabling supervisors to address both institution-specific and system-wide risks in a targeted and proportionate manner. This means that institutions must assess their exposure to climate risks on an individual basis. It is therefore both reasonable and necessary to address climate risks exclusively through the micro-framework.
Furthermore, in the light of the EU’s current agenda on regulatory simplification and competitiveness, expanding the scope and operational complexity of the SyRB appears inconsistent with broader policy objectives. It risks increasing fragmentation, compliance costs and uncertainty.
Against this backdrop, we completely reject the revision of EBA/GL/2020/13. We believe it would be more effective to refrain from making individual adjustments until a decision has been reached on the comprehensive revision of the capital buffer framework currently under political discussion. This applies in particular if such a revision were to have indirect consequences for credit institutions, for example with regard to reporting requirements.