Response to discussion paper on the role of environmental risk in the prudential framework

Go back

Q1: In your view, how could exposures associated with social objectives and/or subject to social impacts, which are outside the scope of this DP, be considered in the prudential framework? Please provide available evidence and methodologies which could inform further assessment in that regard.

Polish Bank Association would like to express its point of the view that it is too early to consider exposures with social objectives and/or subject to social impacts into the prudential framework. The meaning of social risk can be very broad and it would be good to identify, define it and considering the exposures associated with social objectives in the prudential framework should be made at later stage.

We would like to express also the opinion that social risk is a very different from climate/environmental risk. In this area we do not have the clear taxonomy which may decide what kind of activity can be treated as generating the social risk. We can imagine what kind of activity generates social risk but it is not sure because the social standards are different in the different part of the world and also in different Member States. Some behaviours may be treated as socially acceptable in one society, being completely inacceptable in other society. These differences can generate the problem for banks how to treat the same exposures in the different countries. As it is raised in the Discussion Paper (DP), despite the efforts made towards defining social factors at the European level, references to definitions of social factors are generally more difficult to identify than for environmental factors.
We scare also that the social risk may be much more difficult to measure correctly in comparison to the environmental risk. There is no clear understanding how and to what extend the social risk can generate potential risk for banking sector that should be included in the concept of unexpected losses covered by the own capitals.
We are convinced that the social risk should be covered mainly by the national and European legislation which establish the rule of protection generated by potential social risk. Banks have to respect these rules and look how their clients respect these rules but the banking sector should not be responsible for respecting of these rules by the individuals and companies. This task should be maintained to the public bodies in every jurisdiction.

Having said that, this doesn’t mean credit institutions are not making efforts related, for instance, to human rights considering whether there are vulnerabilities when performing the client’s onboarding; or in case of operational risks, social risks could be considered as captured under the current Basel taxonomy as social risks being the root cause of a fraud increase, unavailability of people, etc.

Furthermore, some social risks may be translated by banks into reputational risks and litigation risks (ex. risks of impacting negatively human rights) and are also considered through operational risks as explained above. There is more complicated to include this kind of risk in the broader scope of credit risk, excluding very drastic behaviour against the social risk.
This opinion leads us to the premilitary conclusion that current assessment should be focused on exposures associated with environmental objectives and with environmental risk. Once we have made progress in this area, we may concentrate more attention on exploration of exposures generating different kind of social risk.
However, we recommend to base the introduction of “S” into the prudential framework on the foundation made by CSRD (accompanied by ESRS) and pending social-taxonomy. It will allow banks to use the data provided by the clients (corporate mostly) in standardised approach and not implement additional reporting requirements on clients. We recommend this approach with regards to environmental risks as well.

In our view, human rights violations are a key source of social risks, and we should prioritize the development of a tool that will allow us to prioritize engagement with our counterparties on human rights issues, and manage human rights risk, particularly for corporate clients. This will also understand our potential exposure to potential human rights risks in different sectors.

Whilst we believe social factors have their rightful place in the “ESR” framework and that a human rights policy is key to addressing a big part of the social factors, we currently do not have a view if or how this could be translated into a prudential requirement, not in Pillar 1 nor 2.

By nature, social risks are different than environmental risks, and we believe a key purpose of looking at social risks is to actually actively try to reduce them, notably by engaging with (prospective) clients. The incoming legislation related to supply chain due diligence might actually provide an additional tool for this.

Q2: Do you agree with the EBA’s assessment that liquidity and leverage ratios will not be significantly affected by environmental risks? If not, how should these parts of the framework be included in the analysis?

Yes, we absolutely agree that liquidity ratios are not the right instruments to capture climate risks. There are some arguments to support this point of view. Firstly, the time horizons are completely different. We have two basic liquidity ratio: one of them is the LCR which covers 30 days period and it is difficult to compare with the time horizon analysed for environmental risk purpose (with very long period). Secondly, it is difficult to imagine the construction how to include environmental risk in the calculation of different form of liquid assets of financial institutions. To maintain the ratio established by the prudential regulations banks have to maintain some assets in the form of high liquid assets. We do not see reasonable to establish special haircut for these kinds of assets in order to include the climate risk. Thirdly, we can imagine the solution in order to include in the prudential framework any potential outflow of sources which are generated by the clients treated as not environmental friendly. However, it would be difficult to estimate the right level of potential outflow. The regulator would have to estimate the vulnerability of potential outflow of sources in business activity of such clients and in the consequence the impact on the outflow of sources of these clients from banks. Nowadays it looks as very challenging task.

Banks should not be prepared to identify any impact of the climate risks on liquidity risk, but it should be made nowadays more at the level of the risk management framework than prudential regulations.

Concerning the leverage ratio, it is in our opinion more challenging task. It is more connected with the capital requirements and the environmental risk can be potentially included in this spectrum. However, it is not the measure which takes into consideration specific sources of risk generated by the exposure. This is the reason why it can be difficult to include specific risk – environmental risk as the specific risk in the construction of leverage ratio.

In the medium to long term, should our Tier 1 capital measure or our leverage ratio exposure measure increase or decrease by virtue of changes in either our own funds instruments or our asset values driven by environmental risks, this will be reflected in our leverage ratio. Like liquidity ratios, this potential impact does not warrant any changes to the prudential leverage ratio requirements.

Q3: In your view, are environmental risks likely to be predominantly about reallocation of risk between sectors, or does it imply an increase in overall risk to the system as a whole? What are the implications for optimum levels of bank capital?

In our view environmental risks are likely to be predominantly about reallocation of risk between sectors and within the same sector (between more and less environmental friendly competitors) because this type of risk is step by step introduced into the risk appetite policies of banks. This change in the bank procedures of granting credits will probably generate in longer horizon total reduction of bank exposures to companies operating in the sectors most affected by the climate risk.

In short time the environmental risk may generate an further increase in overall risk to the banking sector because the environmental crisis will generate the important changes in the climate which will affect bank clients and raise the credit risk for banks. However, we hope the growing social awareness of the factors and effects of the environmental risk will cause the reduction of total level of this risk in medium term.

We have also to remember about the transition period necessary for shift of the business model of bank clients towards a more sustainable model. This change will not be immediate. Banks will have to maintain the financing of less environmental friendly companies in short time in order to give them the chance to shift to new technology and in order to avoid any collapses which could have strong negative social and economic impact.

We can expect that there could be an increase of exposures to economic activities that are less affected or to counterparties, which are in a better competitive position due to their environmental risk.

As a result, climate issue does not imply an increase in risk to the banking system as a whole, it implies a change in the risk profile of sectors and, within sectors, of counterparties.
With respect to the implications for capital requirements, we consider that environmental risks are already (being) integrated into banks risk management frameworks. The current capital framework already addresses, at least indirectly, risks arising from climate change and other ESG risks.

We have to remember that existing capital requirements are high and have negative impact on the access to new capital for banks. Higher capital requirements will make the problem more difficult and will generate the question concerning the future of banking industry.

At this point, we would be against using pillar 1 measures to address climate risks. It should be kept in mind, that there are challenges to data that need to be overcome, as well as methodologies that need to be further developed (e.g., accounting for the interconnections in the value chains).

A way forward could be therefore to include environmental risks within the pillar 2 framework for a tailored supervisory assessment on a bank-by-bank basis, relying on the SREP process and stress testing in particular. Wherever possible, supervisors should rely on soft measures to address climate risks.

What should be avoided in any case is to add another macroprudential buffer. The priority should be to assess environmental risks on a bank-individual basis pursuing a more granular approach, in line with portfolios, business model and strategy. Any proposal for a macroprudential tool should be preceded by an assessment as to why a macroprudential tool would be the most effective solution only once the microprudential space would be clarified and while avoiding the double counting of risk. A macroprudential buffer would not be consistent with the nature of climate risk, which is forward-looking in nature and should be assessed on bank-by-bank basis taking into account how individuals banks include climate risks in their risk management framework and can assess climate risk through stress testing in a forward-looking manner.

Q4: Should the ‘double materiality’ concept be incorporated within the prudential framework? If so, how could it be addressed?

This concept should not be incorporated, as it could result in a double counting of the same risks. Both dimensions of double materiality of the counterparty or invested assets are taken into account two times because they concern the same exposures and the same risk for bank.

While we do follow the reasoning the EBA presents in para 23 of the Discussion Paper, we generally disagree that double materiality should be incorporated into the prudential framework. Our different opinion may in part be due to semantics.

We appreciate the EU’s clear choice for double materiality in its reporting and disclosure rules – including for non-financial corporates, which is significantly different from other jurisdictions, where disclosures are typically based on single materiality (e.g. the draft SEC rule in the US).

In the prudential framework however (excluding P3 reporting), it seems counterproductive to factor in non-financial materiality of banks’ counterparties (and invested assets), given the prudential framework serves to deal with financial materiality on the bank itself. We do recognise that an entity’s non-financial materiality (“on the world”) – that has the potential to become financially material, which then brings it under the single materiality category.

Our reasoning is as follows:
• The prudential framework is built around financial materiality for the bank because its goal is to keep a bank solvent when unexpected losses occur, providing a level of protection against losses for bank depositors and creditors, and therefore indirectly for the wider economy. A focus on financial materiality is the best way to protect the very specific and crucial role the prudential framework has.
• That said, the line between single and double materiality can be blurry to a certain degree, which is why it is good that both are disclosed. We believe that banks’ impact on the world, the “double” materiality, is to an extent indirectly covered in the concept of transition risk, as negatively material impact of exposures to counterparties with a negative material impact on the world will likely translate into transition risks and therefore potentially into financial risk.
• Banks’ exposure to double materiality of its counterparties is also reflected in:
o operational risk management (both in Pillar 1 and 2), including through litigation risk and general considerations related to reputational impact, and
o market risk, as asset valuations, which impact equity, bond and derivatives linked to those valuations, take into account double materiality where available (incl. through investor preferences).
• Outside the P1 and P2 prudential framework, double materiality is addressed in reporting requirements, e.g., EU Taxonomy reporting, Pillar 3, and (future) CSRD reporting. Double materiality is also an important driver of business decisions as it can influence consumer and investor behaviour.

Q5: How can availability of meaningful and comparable data be improved? What specific actions are you planning or would you suggest to achieve this improvement?

Availability of good quality data is key enabler in the development of environmental risk assessment. From this perspective, a strong need for statistical data in different cuts (especially detailed on a country level as economies vary from each other) is required. This is important to have a solution in place for smaller companies which might not be able to track their impact on the climate (e.g. GHG emissions) – a common methodology would be highly appreciated.

There is also need for detailed data for the biggest corporates to be standardized and available in a kind of a data warehouse – this seems to be already addressed by SFDR and ESAP mechanisms, however this does not apply to corporates located outside EU. Global standard of reporting together with data warehouse would be important factor to enable efficient environmental risk management. There is alos a need of further clarification where counterparty-driven data is not available, more prescriptive guidance around determining and using proxies and estimates would be useful.

From a banking system perspective, banks will act in order to make progress in the data collection. New disclosures requirements will be very helpful in this process. We think about new challenges as Pillar3, ESAP, and CSRD and also by way of standard simplified templates for SMEs.

It would be important to build on data that is already available through some providers, including public providers, such as EUROSTAT, ENEA (mainly for EPC), JRC, CMCC Foundation, EIOPA pilot dashboard on natural catastrophes and others, like OXR consortium for operational risk. There are also the potentially interesting data providers on local level which could deliver data not only for disclosures purpose but also for modelling and necessary proxies for better risk management. In this area it could also be useful if regulators were to provide some guidance on the development of those proxies to ensure harmonised and comparable standards.

We would like to underline that banks are already facing significant challenges related to data in area of climate-related risks. The public institution should promote among market participants the idea to provide more complex, reliable and standardised data for climate-related risk in order to standardize the information and disclosures delivered by the financial institutions.

Q6: Do you agree with the risk-based approach adopted by the EBA for assessing the prudential treatment of exposures associated with environmental objectives / subject to environmental impacts? Please provide a rationale for your view.

We generally agree with the idea of the risk-based approach adopted by the EBA for assessing the prudential treatment of exposures associated with environmental objectives / subject to environmental impacts. More complicated question is how to do it correctly. We are afraid the regulators do not have yet sufficient data base in order to construct the prudential regulation on the real losses generated by exposures associated with environmental objectives.

At this stage we need further analyses from the regulators and proposal how this can be transferred into prudential framework. We are keen to get a better understanding of how regulators will address it. Currently adding to the prudential framework elements connected with risk which can occur in a term passed the tenor of assets and off-balance sheet items seems to be inappropriate. In our opinion asset valuations, collateral valuations and lower profitability channel will take into account the expected potential environmental effects. To assess if there is a need of other mechanism to better reflect the impact of unexpected environmental risk we should carefully investigate the efficiency of current existing channels. this requires datasets based on risks can be estimated, then if needed amendments to prudential framework.

The EBA rightly points out the dangers of non-risk-based approaches such as supporting/penalising factors (due to lack of transition considerations), and the dangers for bad incentives. Most importantly, green supporting factors could introduce incentives for greenwashing as well as asset bubbles; whilst brown supporting factors would do nothing to facilitate the transition or to reward credible transition plans of companies currently categorised as brown.

Stimulating capital flows to sustainable, taxonomy aligned activities can be better achieved through measures other than the prudential framework. This includes taxation, public financial support, and other public policy measures.

Should policy makers and/or regulators opt for approaches that for classification purposes require the identification of “high risk” counterparties (e.g., brown penalising factor, or concentration limits), it is crucial that from a risk perspective such identification is sufficiently granular and robust. Notably, in the identification of “high-risk” counterparties, the future transition planning of these counterparties should be taken into account, to avoid lock-in of certain counterparties in a punitive category from which they cannot escape.

Q7: What is your view on the appropriate time horizon (s) to be reflected in the Pillar 1 own funds requirements?

As it is expressed in the EBA discussion paper the characteristics of environmental risks (forward-looking, long-term, uncertain timing and magnitude) raise challenges that question the ability and relevance of the Pillar 1 framework to fully capture such risks. One fundamental challenge is the mismatch between the time horizon of Pillar 1 framework and the long term time horizon over which environmental risks are likely to materialise.

The Pillar 1 framework has not been designed to align with the manifestation of long-term environmental risks but rather to capture the possible extent of cyclical economic fluctuations. The environmental risks are also characterised by the uncertainty on their exact manifestation and magnitude and cause the losses in the extended period of time. As the consequence, it is not clear if the business cycle concepts and assumptions that are used in estimating risk weights and capital requirements are sufficient to capture these risks. It could therefore imply that the existing Pillar 1 framework may not be able or well suited to capture the full extent of losses stemming from environmental risks, especially looking at the long-term horizon.

We completely accept this approach. The time horizon for the quantification of the Pillar I risk is sensitively complex because if the horizon is stretched by 20-30 years, the quantification turns out to be much less precise and it can also be a source of potential errors and unintended consequences. On the other hand, the quantification estimated on a very long-time horizon, but that would be applied in a shorter term scenario seems to be too conservative and more related to a stress-test exercise. Generally, it does not seem feasible to adjust the current time horizon of the prudential framework, because it would entail a recalculation of PDs, LGDs, EADs, and ultimately capital requirements, which could significantly reduce their comparability.

As noted in the Discussion Paper, under the IRB approach, the PD of an obligor is estimated in a one-year time horizon based on long-run average one-year default rates, whilst risk differentiating factors may be defined in a way that reflects longer-term characteristics of the obligor (e.g., in the LGD estimates, collateral value, expected credit loss).
Given the challenges in measuring environmental risk, and the longer time horizons usually associated with environmental risks, in our view the appropriate time horizon in the Pillar 1 own funds requirements is one year. This should adequately capture short term unexpected losses with a high level of confidence. Further analysis is required to determine to what extent medium term risks (e.g., in a time horizon of between one and five years) can be assessed with a high confidence level. For those that can, there may be a case for incorporating this time horizon into the assessment of risk drivers in the IRB calculations. For medium term risks that cannot be determined with a high confidence level, and for all long-term risks (e.g., beyond 5 years), an idiosyncratic approach is warranted, via assessment in the SREP and stress testing processes, and Pillar 2 add-ons applied if and to the extent warranted.

Q8: Do you have concrete suggestions on how the forwardlooking nature of environmental risks could be reflected across the risk categories in the Pillar 1 framework?

We appreciate both the importance and the challenge of this question. In the Discussion Paper's concluding remarks, the point made that “the prudential framework has historically been built on backward-looking risk assessments, which does not align well with the forward-looking nature of environmental risks”, is significant.

As also suggested in the Discussion Paper, we support the view that the Pillar 1 framework already includes mechanisms that allow the inclusion of new types of risk drivers, such as environmental risks. The use of additional risk drivers in existing risk categories is more appropriate than the introduction of new risk categories or adjustment factors.

With respect to the forward-looking nature, it is important to consider to what extent such environmental risks are “expected", versus those that are “unexpected". For the former, we anticipate that over the coming reporting periods, we will mature our capabilities in identifying and integrating environmental risks into our IFRS 9 expected credit loss assessments. Any increases in expected credit losses due to environmental risk drivers will result in lower profit for the year, and in turn lower contribution to the capital measure of the CET1 ratio.
To the extent market participants can reliably estimate these expected losses, and to the extent other accounting standards can successfully integrate environmental risks into asset valuation methods (e.g., fair value assessments), this should shift the unexpected losses out of the short and (to a lesser extent) medium term, and into the Pillar 2 SREP process.

As mentioned above, PDs, LGD and EADs are based on short time frame to capture concrete risks with sufficient level of certainty. Including forward looking approach in those metrics and models would mean relying on a scenario, whereas scenarios are general trends with a high level of uncertainty.

The inclusion of forward-looking approaches would be more relevant for exercise already based on scenarios. In this regard, Pillar 2 and scenario analyses, would be more appropriate tools for these considerations.

We have to remember that there is a lack of environmental risk evidences in existing historical data. This is the reason why it is very difficult to suggest concrete solution how the forward-looking approach should be reflected in Pillar 1 framework. We scare that the present level of knowledge on the scale and weight of environmental risks does not allow to make the proposal of inclusion of this risk in the Pillar 1 framework for capital requirements.

Q9: Have you performed any further studies or are you already using any specific ESG dimensions to differentiate within credit risk? If so, would you be willing to share your results?

We consider this question is best answered by the institutions themselves.

Q10: What are the main challenges that credit rating agencies face in incorporating environmental considerations into credit risk assessments? Do you make use of external ratings when performing an assessment of environmental risks?

We understand that the question is directed to credit rating agencies.

Generally, we agree that the increased availability of quality ESG-related data on the market will allow CRAs to better challenge CRA credit risk analyses leading to enhanced due diligence.

The main issue for banks with external rating agencies is the fact that their ratings are black boxes that are hard to validate internally in financial institutions. There is standardization of some level as per ESMA’s regulations.

At this point of time, banks in Poland do not use any external ratings to assess environmental risks, however some talks are held regarding how to apply them in the near future.

Q11: Do you see any challenge in broadening due diligence requirements to explicitly integrate environmental risks?

The regulation (in particular ‘Guidelines on loan origination and monitoring’) requires that institutions are involved in this process of collecting information concerning the climate-related and environmental issues. In that sense client due diligence is already adapted by banks to capture climate and environmental risk.

In many cases environmental data is not available by the clients, central databases or external data provides. The regulatory and/or market standard for data requirements is fast developing. Especially, private clients do not have the knowledge nor the financial capacity to provide audited documentation on environmental risks (e.g. for their real estate). Additionally to these burdens, there are currently not enough experts in the market to cover all these data requests.

Many data points have to be estimated on portfolio level based on national or regional averages. Beside the underlying model risk, this bears also reputational risk for a bank since interpretations have to be made on firm-level could without any guidance by regulators. All these limitations lead to the conclusion that it is too early imagine the implementation of due diligence requirements to explicitly integrate environmental aspects.

Q12: Do you see any specific aspects of the CRM framework that may warrant a revision to further account for environmental risks?

We believe that the current CRM framework does not need any modifications to further account for environmental factors, whether with a positive or negative impact.

However, we have to add that banks in Poland are at an early stage of ESG risk management system development, thus we do not see any specific aspects of the CRM framework to be adjusted at this point of time. This approach might change once some new researches, models and guidelines will be published.

Q13: Does the CRR3 proposal’s clarification on energy efficiency improvements bring enough risk sensitiveness to the framework for exposures secured by immovable properties? Should further granularity of risk weights be introduced, considering energy-efficient mortgages? Please substantiate your view.

First and foremost, there is no law regarding EPC labels in Poland. There is also no obligation for each and every property to have energy efficiency certificate (for retail mortgages only those purchased on the primary market have it). What is more, according to the current law in Poland, the banks cannot access the central register of energy efficiency certificates. The matter of energy efficiency should be described in details in the standards for property value appraisal since the ratio based on this value influences the level of risk weighted assets.

We do not see a need for more complexity in calculation of RWAs for exposures secured on mortgages on immovable property and therefore we do not support implementation of further granularity of risk weights for this type of exposures. In our opinion proposals included in the finalization of Basel 3, to use the value of property from the time when credit was granted, or the proposal included in CRR3 pointing on long term average value of the property (3 – 6 year) with option to increase this value only in case of improvement in energy efficiency, does not seem well balanced solution and will not diminish cyclicality of capital adequacy rules to the expected extent. In the event of default when collateral is going to be used, the current market value of the property will be taken into consideration. This may result in increased mismatch between capital requirement and unexpected losses.

Finally, based on current valuation standards taking into account average levels of transaction prices for similar properties in region, we have doubts whether it will be possible to distinguish in transparent manner the increase of the value of the property resulting from energy efficiency improvements and other factors. We have concerns that it may create space for an abuse.

Q14: Do you consider that high-quality project finance and high-quality object finance exposures introduced in the CRR3 proposal should potentially consider environmental criteria? If so, please provide the rationale for this and potential implementation issues.

It should be noted that HQ Object Finance and HQ Project Finance exposures benefit from an enhanced due diligence to ensure that financial risks are adequately covered. This include the analysis of environmental factors. A risk-based approach should be followed and double-counting should be avoided. Environmental topics, with the transition and physical risks, would be best considered within the cash flows projections of the borrower when possible, and within the risk assessment of the transaction. There should not be an adjustment factor on top of other factors of selection of High-Quality transactions.

Therefore, we think that it would be unnecessary to add environmental criteria for the eligibility to the sub-asset classes HQ Object and HQ Project finance since environmental factors are sufficiently taken into account due to the very nature of these activities.

For the cases where ECAI ratings are available treatment of exposures is more similar to general approach in the class of exposures to corporates and there is less risk of inconsistency. Additionally we believe that ESMA approved rating agencies should have environmental risk assessment embedded in their rating methodologies.

Finally, it is worth to mention that in Poland most infrastructure projects, even those with very positive environment influence like investments in public transport, are not conducted in the specialised lending regime included amongst criteria for infrastructure supporting factor (ISF) application. In our opinion these criteria are too stringent for many important environmentally positive projects (like construction of subway). The rationale behind introduction of ISF in CRR2 was predominantly justified with the planned transformation in energetic sector. We believe that taking into account current discussion regarding ESG risks in prudential regulation the rationale should be broaden and criteria for the use of ISF should be slightly relaxed. It is another evidence that solutions in prudential framework must be well balanced and prepared holistically.

Q15: Do you consider that further risk differentiation in the corporate, retail and/or other exposure classes would be justified? Which criteria could be used for that purpose? In particular, would you support risk differentiation based on forward-looking analytical tools?

We do not see any reasons to further differentiate the exposure classes looking at the environmental risks. We have many classes nowadays and the idea to add additional ones would be too much. It would complicate strongly the whole system and the climate risk would probably require few additional exposure classes to capture this risk fully.

As stated in the EBA discussion paper, simplicity and risk sensitivity need to be balanced. However, if the objective is to integrate environmental risks, while risk differentiation in the corporate exposure class may probably be justified, it cannot be done only at the level of a sector but at the level of the counterparty as it has been done in climate stress tests. Indeed, if the sector can give a good indication of clients that are more exposed to environmental risks, it is not sufficient to assess the real risks: it can depend on many parameters like the commitment of the client to transition, its cost of production etc.

The implementation of bigger differentiation in the retail exposure classes would be particularly challenging and probably too complex. We look in this context particularly at the mortgage credit exposures for individual clients with many parameters to measure the level of environmental risk.

In our opinion improved risk weights differentiation among existing risk exposure categories in standardized approach should involve both mentioned dimensions of ESG risks as they may act in different directions. Improved risk weights differentiation should also avoid double counting of ESG risks when these risks are incorporated in ECAI ratings methodologies.

Risk differentiation based on forward-looking analytical tools in standardized approach does not seem enough prudent since this approach is by definition more conservative and includes risk weighting scheme provided by supervisors based on historical results of quantitative impact studies. Therefore it should be regulatory authorities who first use forward-looking analytics to prepare more granular risk weighting scheme including ESG risks and then banks may look if supervisors left space for them to use such analytical approach in determining risk weights for their assets.

Q16: Do you have any other proposals on integrating environmental risks within the SA framework?

We have not identified risk-based considerations that would allow changes to the SA framework. The answers to above asked questions have given the answer why we do not have any proposal in this point.

Q17: What are your views on the need for revisions to the IRB framework or additional guidance to better capture environmental risks? Which part of the IRB framework is, in your view, the most appropriate to reflect environmental risk drivers?

In our view, there is no need for revision to the level 1 IRB framework at this stage.

Until the common data foundation has significantly matured, there should be ample flexibility for banks to integrate environmental risks into IRB models where relevant.

The most vivid environmental risk examples for Poland would be:
• the risk of flood, which could e.g. damage buildings and/or disrupt business operations. It is especially important in case of buildings / production plants located on flood plains.
• water shortages, which could e.g. disrupt processes in manufacturing plants.

The main problem is lack of historical data, thanks to which we could conduct tests of statistical significance for environmental risk drivers. Such data should be either collected or obtained from an external source. Even if we had the data, it is possible that we would not prove the direct relation between an environmentally negative event and risk materialization.
It is also worth mentioning that not the historical event realization itself but its probability would rather be more meaningful in risk parameters modelling (e.g. in case of real estate valuation we would gladly use the tornado risk estimate). The question we raise at this point is: should credit risk units analyse the probability of tornado in particular areas of Poland?
We see environmental risk assessment as a hybrid between operational and credit risk. Operational risk department or a dedicated ESG unit could deliver probability estimates of particular environmental events, which credit risk department would translate into e.g. additional Pillar II capital components.

The full review of model risk drivers takes place every 3 years (according to the Monitoring Standards). Once we obtain suitable data, we would verify whether additional environmental factors would increase the model predictive power. If yes, model refinement could be needed.

Additional notes on PD:

So far we cannot prove the historical correlation between negative environmental events and default. Thanks to comprehensive dataset we could e.g. examine whether after the flood the customer’s PD has increased and whether these two events are directly related.

Currently it seems that the best way to mirror environmental factors in PD (or more specifically, in the rating assignment) is the override. At ING BŚ, the rating override due to transformation or physical risk is already possible. Since we are required by the Guidelines on PD estimation, LGD estimation and the treatment of defaulted assets (p. 204) to monitor override reasons, the potential environmentally-driven rating overrides could be a valuable source of information.

Q18: Have you incorporated the environmental risks or broader ESG risk factors in your IRB models? If so, can you share your insight on the risk drivers and modelling techniques that you are using?

This is more the question to individual banks, not to banking associations. However:
As mentioned in our answer to Q17, rating adjustment is already possible due to following ESG factors:
• Transformation risk – policies and regulations,
• Transformation risk – technology – transition risk,
• Transformation risk – market sentiment, demand,
• Physical risk – extreme weather events, long-term weather changes,
• Physical risk – water supply shortage,
• Physical risk – shortages of commodities and natural resources,
• Physical risk – biodiversity loss,
• Physical risk – pollution and waste.

Flood risk and energy efficiency is already taken into account in corporate lending by valuation of physical collaterals. Corporate governance assessment partially addresses social risk - customer due diligence verifies i.a. HR inequalities / misuses or making business with counterparties from countries of dubious reputation).
By residential mortgage lending we do not finance real estates located on flood plains and we gradually collect data on energy efficiency for a part of our portfolio.

Q19: Do you have any other proposals on integrating environmental risks within the IRB framework?

Firstly, downturn (DT) LGD quantification in line with the EBA GLs on DT estimation currently focuses solely on historically observed DT periods. Increased LGDs due to e.g., a severe weather event (flood, fire, storm, etc.) could be biased consequently. This should, however, not necessarily be seen as a shortcoming as the risk could be assessed through the stress testing framework (using for example a pre-defined scenario).

Secondly, we took part in the first ECB climate risk stress test and we strongly believe that at such an early stage of environmental data collection incorporating environmental risk into Pillar I own funds calculation is definitely premature. Banks need time for inventing the accurate methodology of capturing environmental factors into Pillar II capital requirements. At the moment environmental drivers should not be in the regulatory spotlight when it comes to Pillar I.

Q20: What are your views on potential strengthening of the environmental criterion for the infrastructure supporting factor? How could this criterion be strengthened?

The infrastructure supporting factor is an important feature of EU regulation and should be maintained as it is to further promote the development of infrastructure projects.

We strongly opt for wider use of infrastructure supporting factor, which could further stimulate projects fostering into sustainable economy. We see no chance of energy efficient infrastructure investments, i.a. in renewable energy sources, without a strong support of financial sector and public-private partnerships.

From our perspective, the main reason for the limited use of infrastructure-supporting factor is very strict requirements on corporate structure (SPV, project finance). They often exclude investments, which serve public purposes and contributing to the achievement of environmental objectives, from the ISF capital relief. Therefore, we would recommend loosening criteria related to financing structure and focusing more on how a particular investment would contribute to the realization of environmental goals, i.a. the ESG transition.

Q21: What would in your view be the most appropriate from a prudential perspective: aiming at integrating environmental risks into existing Pillar 1 instruments, or a dedicated adjustment factor for one, several or across exposure classes? Please elaborate.

Any adjustment factor, if introduced by the EBA, should be primarily risk based. It is not easy task to implement it correctly respecting the right level of risk generated by the exposure.
However, we have to add that this approach would be much better (less complicated) than integrating environmental risks into Pillar 1 framework.

The answer depends also on the purpose: stimulating sustainable transition and a green economy or capturing risks related to e.g., climate change.

Stimulating the sustainable transition could be most easily and consistently achieved by adjustment factors (akin to the ISF or SME supporting factor). We are generally not in favour of the introduction of green and/or brown supporting factors, as they are not risk based. The prudential framework should not serve as a tool to replace more appropriate policy tools like taxation.

If an accurate estimate of the associated risks is the goal, then no overall adjustment factors should be used as the IRB models will already capture the risks to a varying degree. A ‘one size fits all’ adjustment will not lead to an accurate estimate and is therefore not appropriate.

Existing IRB modelling (aspect 1 above in Q17) or stress testing (aspects 2 and 3 above in Q17) are better measures of achieving this purpose.

Credit risk IRB models should provide adequate default and loss estimates. From a credit risk perspective this should be integrated into the normal credit risk processes based on the existing Pillar 1 framework. The purpose should not solely be to integrate environmental factors into Pillar 1 instruments, unless this leads to statistically relevant and feasible updates to parameter estimation for use in PD, EAD and/or LGD models. Some environmental factors are being already taken into account by credit risk assessment (energy efficiency, CO2 emissions, rating adjustment), therefore specific methodology for environmental risks valuation which would prevent double-counting of ESG risk is a must. Incorporating into prudential framework external environmental ratings, which would be treated analogously to ratings issued by credit assessment institutions (ESMA-authorized and fulfil harmonized conditions specified in EU law) could be considered as well. Going along this path regulators and financial institutions would need to find a way to avoid double-counting of impact of environmental issues in these two rating regimes. Banks would also face another problem, the same as in case of external credit assessment. So far ECAI ratings are available predominantly for large, usually publicly listed corporates / institutions, applying for sizeable financing, while the regulatory intention seems to stimulate environmentally-favourable financing decisions in case of SMEs as well.

Prudential risks stemming from environmental factors can be evaluated and steered across portfolios (geographies, client segments, sectors) based on existing credit risk metrics using our internal credit risk appetite framework and Pillar 2 add-ons.

We believe that at this early stage of ESG data collection, incorporating environmental risk into our Pillar 1 own funds calculation would be rather premature. At this moment, the focus should be on developing the correct methodologies of capturing environmental risk factors and including them in Pillar 2 internal capital estimates. Such an approach should not disrupt existing credit processes and would still fulfil supervisory authorities’ expectations regarding ESG risk.

Q22: If you support the introduction of adjustment factors to tackle environmental risks, in your view how can double counting be avoided and how can it be ensured that those adjustment factors remain risk-based over time?

The question concerning the avoidance of double counting is very important. As we expressed above, banks use the environmental risks in the process of credit origination. In this way this risk is included indirectly in the Pillar 1 framework.

In order to avoid the double counting effects we recommend to implement the green factor only. This approach would promote the transmission of economy to more sustainable model but we do not support implementation of brown factor which would penalise the banks for their historical exposures.

Q23: What are your views on possible approaches to incorporating environmental risks into the FRTB Standardised Approach? In particular, what are your views with respect to the various options presented: increase of the risk-weight, inclusion of an ESG component in the identification of the appropriate bucket, a new risk factor, and usage of the RRAO framework?

The incorporation of environmental risks in market risk framework is particularly difficult. The main reason is the big gap in time horizon in both kinds of risks. We look at the market risk in short perspective and the environmental risk has very long-term period to materialize. We do not see any areas where the environmental risks can have significant impact on the losses generated by the market risk in banks. The regulators should concentrate at this stage more on the right capture of market risk in banking activity than the efforts to include the environmental risks in existing framework.

In summary, we welcome the acknowledgement that there is a growing market in products which explicitly reference climate risks and welcome EBA initiatives to integrate these into the FRTB framework. Where climate acts as a risk driver rather than a risk factor, the required analysis is best accommodated through the Pillar Two framework. The different presented options are discussed below.

a. Increase of the risk weight
The risk weights currently used in the FRTB sensitivity-based method (SbM) are defined in the regulation and are based on historic stress data. We remark that the calibration of these existing risk weights is already extremely conservative. The inclusion of forward-looking scenarios, on top of risks calibrated with historical data, would be a significant divergence from the existing approach. Furthermore, it would, given its likely macro design, insufficiently differentiate exposures which exhibit high levels of environmental risk from other market risk exposures. This would leave limited room for management steering of Bank portfolios through limit setting.
If climate related risks are to be included in the Prudential risk framework, it should be done in a way which incentivises proactive management of climate-related risks and so facilitates balance-sheet steering, rather than one which unnecessarily increases the cost of capital for legitimate client servicing activities.

b. Inclusion of an ESG component in the identification of the appropriate bucket
At present, equities are classified according to industry sector and economy (advanced or emerging). Similarly, bonds are categorised according to counterparty type and credit rating. Under this approach, an additional dimension would be included in the bucketing process to reflect environmental risks, which would lead to an increased risk weight for carbon-intense sectors. This would in effect introduce brown penalising factors and/or green supporting factors for securities in the trading book, an approach which EBA has rejected for credit risk [REF].
This should not preclude the use of some form of sector-based assessment. Recent supervisory stress testing has focussed on the sector specific risks associated with hypothetical shocks in carbon-intense sectors. A natural evolution of this initial materiality assessment would enable a better appreciation of the sensitivity of Bank portfolios to climate-relevant factors such as increases in global carbon taxation. Pending finalisation of such analyses, we believe that Pillar Two stress testing and concentration risk management remains the natural home for this approach.

c. New risk factors
The establishment of new risk factors for products which explicitly reference climate and environmental risks, such as weather derivatives and ESG swaps, is in principle sensible and will enhance the associated risk management techniques. As these markets become more significant, market participants will benefit from the implied market-based pricing for these risks.
In more general terms, we consider that the development and universal application of climate risk factors would be flawed, for the simple reason that climate is not a risk factor but a risk driver: it is for this reason that we refer to climate-related market risks. We would not expect therefore to determine a specific ‘risk factor type’ in addition to delta, vega and curvature, but rather seek to understand the impact of physical and transition risk scenarios on the prospective evolution of these existing parameters.

d. Usage of the RRAO framework
EBA note that the RRAO framework could in principle be used to determine capital requirements for climate related risks, so as not to tamper with the two main building blocks of the existing FRTB framework (SbM and JTD). We remark, consistent with EBA analysis, that the intended purpose of the RRAO is to address risks linked to complex products, as opposed to the climate related risks associated with conventional products.
The RRAO remains the correct place for the assessment of capital requirements for complex products whose payoff is highly sensitive to climate risk considerations: for example, structured ESG products or complex weather derivatives. However, we believe that the inclusion of vanilla products within the scope of RRAO would be overly procrustean and would harm the integrity of the existing framework. Where vanilla products exhibit climate-related risks, these should be assessed in a manner more appropriate to the product.

Q24: For the Internal Model Approach, do you think that environmental risks could be better captured outside of the model or within it? What would be the challenges of modelling environmental risks directly in the model as compared to modelling it outside of the internal model? Please describe modelling techniques that you think could be used to model ESG risk either within or outside of the model.

Environmental risk should be treated separately - also as a separate model - which will allow to identify the additional impact of environmental risk on the risks identified in the FRTB. In addition, the models will be more transparent and unambiguous in the analysis of the results - therefore the environmental risk should be identified outside the existing internal models.

In the absence of historical data, Banks would need to consider multiple climate scenarios (e.g., IPCC RCPs) and translate these into sets of actionable stress parameters, making use of public sources such as the NGFS toolkit. The correct place for such analyses is the Pillar Two framework. This allows for the development of good quality scenario models in conjunction with business model analysis, to determine future impact on risk appetite.

We have to add that the Internal Model Approach is not popular in Polish banking sector in market risk area, so we do not have detailed answer to this question.

Q25: Do you have any other proposals on integrating environmental risks within the market risk framework?

Significant changes to Pillar One should be globally co-ordinated through the Basel Committee. Uncoordinated policy initiatives leading to divergent Pillar One regimes will shift carbon financing to non-EU jurisdictions and would not address underlying concerns. This will not mitigate the systemic risks associated with potentially disorderly future market transitions.
We believe that the Pillar 2 framework is best placed to assess climate and environmental risks. This is for a number of reasons. First of all, the complexity associated with climate risk quantification, associated with its relative immaturity, is not consistent with the high analytical standards demanded for Pillar One reporting. Any proposal to incorporate this into Pillar One would increase model risk outside the accepted levels post-TRIM.

Pillar 2 is also more relevant for assessing climate related market risks. Whereas Pillar 1 is mostly focussed on market risk in the trading book, which is mostly short term in nature, Pillar II captures the longer-term climate related market risks, which are mostly in the Banking Book (for example, in the investment portfolio) and thus out of scope for Pillar 1. Stress testing remains an acknowledged part of the Pillar 2 of the Prudential framework and as such remains the most appropriate place for the assessment of forward-looking climate related risks, along with related Pillar Two measures such as the concentration risk management framework.

Finally, Pillar 2 is a more flexible solution, which allows for a graduated enhancement of maturity over time without the need for repeated and extensive updates to legislative documentation.

We may also propose to introduce supporting factor to the exposures in the green bonds. In order to promote the development of this part of capital market and having in mind the low environmental risks connected with green bonds it could be good solution to introduce such factor or exclude these securities from market risk capital requirements for banks.

Q26: What additional information would need to be collected in order to understand how environmental risks impact banks’ operational risk? What are the practical challenges to identifying environmental risk losses on top of the existing loss event type classification?

We welcome the EBA’s approach in which climate-related risks are not a new category of risk but drivers of existing risks. Therefore, we consider the existing operational event types as being sufficient and they cover also different types of events that may be caused by climate/environmental risks.

Therefore, we consider the existing event types sufficient, as they cover types of events that climate and environmental risks may cause. To identify losses from climate and environmental risks, an additional flag to the current event types could be introduced as proposed in the paper. For this, a standardized definition of climate and environmental risks is required.

Therefore, at this stage, a climate and environmental or ESG flag, as suggested in the paper, will be sufficient to enable more structured risk event reporting and analysis. We propose using existing industry bodies involved with OR, such as AFME and the ORX consortium, to develop an industry-standard/guidance for applying such a flag. This way, a widely accepted classification can be derived and used for internal risk management.

The current classification by event types focuses on the effect of operation risk (e.g. physical damage). One way to incorporate more transparency could be to add a cause dimension (e.g. weather effects). A challenge concerning climate risk will be the differentiation between regular weather events and climate risk, e.g. rainfall as a regular natural event and rainfall as a climate risk event.

Regarding physical risks, we see another challenge that needs to be carefully thought through. The paper pointed out that access to climate data and forecast possibilities is limited. Where banks cannot access/model these, risk assessments from regulators could be helpful. E.g. risk scores for specific regions to assess physical risk for own infrastructure or third party providers in these regions.

Q27: What is your view on potential integration of a forward-looking perspective into the operational risk framework to account for the increasing severity and frequency of physical environmental events? What are the theoretical and practical challenges of introducing such a perspective in the Standardised Approach?

We do not think this is necessary to do it at this stage. The environmental events have to be included in the managing operational risk in banks. We do not see the reason to give special attention to this factor now.

As correctly summarized in the EBA paper, SA-OR is not designed to give this forward-looking perspective. This applies to all operational risks, not just the environmentally driven ones. The BCBS decided on a simple approach after the sub-optimal experience with more complex approaches under the previous framework. The regulatory framework in the Basel III accord relies solely on a size-based metric (Business Indicator), especially if the Internal Loss Multiplier (ILM) will be set equal to 1 in the final CRR3 text. Such an approach doesn’t seem capable of capturing the increasing severity and frequency of physical environmental events. Furthermore, should the ILM not be neutralised at 1, , it won’t be possible to extrapolate the portion of the ILM connected to climate and environmental issues as the ILM is based on aggregate historical losses. Therefore, it implies that such an approach is not forward-looking and is not very risk-sensitive (estimates the historic average rather than the proper risk profile).

For these reasons, the Pillar I approach is accompanied by sound operational risk management in Pillar II. Any specific treatment of ESG risks should instead become part of the broader Pillar 2 framework.

In this context, we note that it is challenging to predict the severity and frequency of physical environmental events in the mid - to long- term, resulting in predictions with a high level of uncertainty. An annual evaluation of scenarios is likely more efficient and reliable because structural changes in severity and physical environmental events do not happen overnight.

Q28: Do you agree that the impact of environmental risk factors on strategic and reputational risk should remain under the scope of the Pillar 2 framework?

Yes, we agree that the impact of environmental risk factors on strategic and reputational risk should remain under the scope of the Pillar 2 framework.

This approach allows applying banks’ specific situations to the assessment rather than relying on the more standardized approach under Pillar 1 to provide appropriate outcomes. At the same time, supervisory/regulatory guidance is needed to prevent the development of an unlevel playing field.

Q29: Do you have any other proposals on integrating environmental risks within the operational risk framework?

As mentioned above, we do not see any reasons to integrate stronger the environmental risk in the operational risk framework. We can suggest to add new category to the definition of environmental risk in order to express clearly that operational risk should encompass also climate-related risk.

Any regulatory framework must treat ESG risk (including climate/environmental risk) as a risk theme (i.e., similar to conduct risks) rather than as an isolated new risk type. It is difficult to recommend an industry-wide approach to integrate climate and environmental risks into the operational risk framework and, more specifically, the risk taxonomy, as the choices made would invariably depend on individual banks’ internal risk organisation and enterprise risk-wide structures. Nevertheless, we agree with adding environmental risks to the Pillar 2 toolset.

Q30: What, in your view, are the best ways to address concentration risks stemming from environmental risk drivers?

We agree with the EBA discussion paper that an expansion of the existing Large Exposure Framework is not the correct path to address this risk due to its focus on Groups of Connected Clients.

Moreover, from the relevant section of the discussion paper we understand that the potential thrust of such concentration risks is not limited to a high risk of natural catastrophes like flooding, earthquakes or wildfire, but could also potentially include steering of exposure concentrations to environmentally harmful sectors, like the mentioned carbon-intensive industries.

Indeed, scenario analysis can be made under dynamic balance sheet assumptions and, as a result, assess concentrations in a forward-looking manner. Concentration at a given point in time should be complemented with analyses of how they evolve in various scenario, including taking into account the maturities of exposures.

That being said, it does not mean that the prudential regulation should set hard limit at this stage. It should be taken into account in risk diversification policy of the credit institution.
However, we have also in mind the necessity to create temporary solution. Some banks have nowadays big credit exposures to the environmentally harmful sectors of economy and they can not stop environmentally harmful sectors to finance in short time them without bearing big losses and without giving chance to the counterparties to transform their business model to more environmentally friendly one.

A clear challenge would be to identify precisely which exposures are considered high-risk, for which the current taxonomy framework does not provide a definitive answer. In the short term, focus should in any case be on climate change related metrics only, not wider environmental metrics more broadly.

This classification issue should be considered carefully and would likely need to be developed separately from the taxonomy. If this approach were to be pursued, we believe it is important to distinguish entities that are:
• High-risk counterparties (e.g., polluting industry), but that have credible transition plans in place through which they demonstrate how they will transform their activities by 2050. This should include measurable intermediary milestones, possibly with 3rd party control mechanisms.
• High-risk exposures that do not have such plans in place. Such exposures clearly pose a more severe concentration risk in the medium and longer terms.

Q31: What is your view on the potential new concentration limit? Do you identify other considerations related to such a limit? How should such a limit be designed to avoid the risk of disincentivising the transition?

We would like to indicate that the proper identification of the single-risk group, i.e. close / significant relationships between clients, allows us to sufficiently manage the risk of concentration of large exposures. One of the basic criteria for close links between clients of an institution is the criterion of mutual influence between clients, who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, in particular funding or repayment difficulties, the other or all of the others would also be likely to encounter funding or repayment difficulties. Banks are required to checked the conditions for such reciprocity in accordance with Article 4(1) (39) of Regulation (EU) No 575/2013 and in accordance with the applicable EBA/GL/ 2017/15 Guidelines, which are in force from 2019. The issue of economic ties is particularly raised by EBA for clients to whom the Bank's exposure reaches or exceeds 5 % Tier 1. Banks comply with these requirements. In the RTS project: EBA/CP/2022/07, which the banking sector gives its opinion on until September 8 this year, these expectations will be sustained.

If an institution assesses that environmental risk may be a source of deterioration of the client's situation, it may also therefore be a source of a close relationship. In such sense the issue of environmental risk is addressed in the applicable supervisory requirements and we ask for leaving them unchanged.

We can bring also other argument. To date, the cases of bank default or big losses generated by overexposure to sectors causing natural catastrophes are not evident. If it is true there is no reason to implement additional concentration limit for banks. In the time of growing significance of environmental challanges it is difficut to imagine that banks will concentrate their business activity generating potential big risk of enviromental catastrophes. Banks are interested in building a balanced credit portfolio.

The potential cost of introducing new limit, i.e. building the methodologies and IT systems to monitor it according to the (to be established) regulatory rules at each bank, and proving and auditing its compliance will exceed its potential economic benefit.

We believe there is merit in exploring the idea of a dynamic concentration limit that pursues the decarbonisation of the economy. This is based on the idea that for banks to align their balance sheet with the Net Zero target by 2050, it is paramount that their “carbon exposures” gradually decline over time.

The calibration of a limit would require thorough investigation about appropriate levels, which should be informed by risk-based data.

In the short term, we believe it is better for such a limit to not automatically trigger RWA or buffer consequences. Instead, limits could be used to trigger additional disclosure requirements, and/or to inform supervisory dialogue, which would allow supervisors to take concentration risks - if left unexplained and unaddressed - and incorporate them into the Pillar 2 requirements. One of the reasons for this more discretionary approach is that there may be temporary challenges in hard-to-abate sectors that warrant a recalibration of sector decarbonisation pathways. Examples of this include temporary supply chain issues, geopolitical events, or other idiosyncratic events (the pandemic being a recent example).

In terms of scope, we currently do not see a credible means of measuring an exact level of climate and/or environmental risk across all exposures, as we lack historical data on both physical and transition risk. A more realistic approach might be to focus on high-risk sectors, which would require – as stressed in Q30 – a clear distinction between counterparties with or without credible transition plans. As the EBA rightly highlights in the DP, a concentration limit should not disincentivise counterparties currently in polluting sectors from transitioning to low-carbon activities.

The DP raises several other important considerations on the imposition of a concentration limit, the most important of which is that of an indiscriminate shift of environmental risk to non-bank financial intermediary. This must be avoided, as it would increase concentration risk to the overall system.

This last point illustrates that large exposure or concentration limits may be better addressed in a more general way, in the context of macroprudential considerations affecting both bank and non-bank financial intermediaries.

Q32: With reference to the three risk categories the IFR is based on (Risk-to-Client, Risk-to-Market and Risk-to- Firm), which of these could be related to environmental risks, and to what extent?

Question not applicable for banks.

Q33: Should any of the existing K-factors incorporate explicitly risks related to environmental factors?

Question not applicable for banks.

Q34: What elements should be considered concerning the risk from environmental factors for commodity and emission allowance dealers? Are there any other specific business models for which incorporation of environmental factors into the Pillar 1 requirements of the IFR would be particularly important?

Question not applicable for banks.

Q35: Do you have any other suggestions as to how the prudential framework for investment firms could be adjusted to account for environmental risk factors?

Question not applicable for banks.

Name of the organization

Polish Bank Association