Response to consultation on Guidelines on methods for calculating contributions to Deposit Guarantee Schemes (DGSs)

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Question 2: Do you consider the level of detail of these draft Guidelines to be appropriate?

Yes

Question 3: Is the proposed formula for calculating contributions to DGS sufficiently clear and transparent?

Yes

Question 4: Considering the need for sufficient risk differentiation and consistency across the EU, do you agree on the minimum risk interval (75%-150%) proposed in these Guidelines?

This is not a problem, as long as it is indeed not compulsory to use the entire interval for the participating institutions. If institutions have a similar risk profile, they should also pay a similar relative contribution.

Question 5: Do you agree with the core risk indicators proposed in these Guidelines? If not, please specify your reasons and suggest alternative indicators that can be applied to institutions in all Member States. Do you foresee any unintended consequences that could stem from the suggested indicators?

We do not agree with the following indicators:
• RoE is probably a more suitable indicator than RoA, as it says more about the capital restoring capacity of a financial institution.
• The NPL ratio is a problematic indicator given definition and policy differences between institutions, which means that it doesn’t necessarily provide a lot of insight in the risk profile. We see more merits in P&L volatility or actual impairments.
• Within capital, much more weight should be given to the CET1 ratio. The leverage ratio should not be made as important as the CET1 ratio as it doesn’t reflect the risk of the assets on the balance sheet at all.
• Likewise, within liquidity and funding more weight should be given to the LCR, at least until the NSFR is formally introduced.

Question 6: Do you agree with the option to use either capital coverage ratio or Common Equity Tier 1 ratio as a measure of capital? Would you favour one of these indicators rather than the other, and why?

We prefer the CET1 ratio as it is already used in day-to-day management. A serious drawback of the capital coverage ratio as defined on page 38 of the proposal is that institutions can be confronted by shock effects in case the required CET1 ratio changes, for example as result of an SREP.

Question 7: Are there any particular types of institutions for which the core risk indicators specified in these Guidelines are not available due to the legal characteristics or supervisory regime of these institutions? Please describe the reasons why these core indicators are not available.

Not that we are aware of.

Question 8: Do you think that more guidance, or specific thresholds, should be provided in these Guidelines with regard to calibration of buckets for risk indicators, or minimum and maximum values for a sliding scale approach?

No

Question 9: Do you agree with our analysis of the impact of the proposals in this Consultation Paper? If not, can you provide any evidence or data that would explain why you disagree or might further inform our analysis of the likely impacts of the proposals?

Mostly. But we do NOT agree that the bucketing approach would give stronger incentives for banks to improve their risk management than the continuous scale approach. This statement is true for banks, close to a lower risk category, but it is false for those banks that are far away: “It will take that long before we see the results of our efforts that we may just as well not start with it.” The continuous scale approach has the advantage that it gives an incentive to every bank alike. We would therefore have expected the authors to prefer the continuous scale approach.

Name of organisation

Dutch Banking Association