Response to consultation paper to update the identification methodology of global systemically important institutions (G-SIIs)
Go back
This mandate includes the specification of the additional identification methodology introduced by co-legislators in article 131(2a) of CRD5, the rationale of which is set out in recital (28) of the amending directive : “The progress made in terms of the common approach to resolution resulting from the reinforcement of the single rulebook and from the establishment of the Single Resolution Mechanism (SRM) has significantly developed the ability to orderly resolve cross-border groups within the banking union. Therefore, and without prejudice to the capacity of competent or designated authorities to exercise their supervisory judgment, an alternative score reflecting that progress should be calculated and competent or designated authorities should take that score into consideration when assessing the systemic importance of credit institutions, without affecting the data supplied to the BCBS for the determination of international denominators. EBA should develop draft regulatory technical standards to specify the additional identification methodology for global systemically important institutions (G-SIIs) to allow the recognition of the specificities of the integrated European resolution framework within the context of the SRM”
In the draft RTS, EBA suggests to introduce a number of constraints to the potential reduction in the score due to the additional identification methodology:
• First, in recital (4) that “the additional overall score obtained for each entity with cross-border activities within the Member States participating in the Single Resolution Mechanism, on the basis of which this supervisory judgement could be applied, should be constrained to a maximum decrease of 10 basis points from the original GSII score, in line with the international standards”.
• Second, a dedicated box in paragraph 5a of article 5 suggests that “in order to remain in line with the BCBS framework” EBA contemplates three alternative constraints, including but not limited to the above-mentioned 10 bp cap.
France is of view that such constraints (all three options contemplated by EBA) are without legal basis and contradict the clear intention of the EU co-legislators. Introducing quantitative limitations to the benefits drawn from the alternative score is clearly an “essential element of the legislative act” (within the meaning of article 290 TFEU). It would belong to a level 1 act, if co-legislators had desired such limitations in the carefully balanced political compromise which they struck in 2018. Actually, the co-legislators did not ignore framing the downward discretion, so that EBA should not feel the need to propose framing in its own initiative (an initiative which it does not legally enjoy anyway). Indeed in the course of the negotiation, when discussing the possibility that a bank could be removed from the list of GSIIs due to the alternative scoring methodology, the co-legislators have eventually decided that the downward discretion in article 131(10)(c) shall not allow to de-designate a GSII : there is effectively a floor to the lowest bucket associated with a 1% buffer rate. This decision evidences the political/”essential” nature of any quantitative constraints to the alternative scoring methodology. EBA has no legal basis to add further constraints via the RTS.
Besides, the constraints proposed by EBA are not grounded in the BCBS framework either. The BCBS framework already provides the discretion for supervisors to re-allocate a given GSII upwards or downwards in the scale of buckets (potentially more than only one bucket up or down). The BCBS standard does not contemplate any quantitative constraints like the ones contemplated by EBA, it simply requires due justification in exercising the discretion. The EU additional scoring methodology is precisely meant to objectivise the exercise of the downward discretion already provided for in the Basel framework.
The EBA should strictly stick to the competences it was entrusted with by its founding regulation, and within the specific mandate of Article 131(18) CRD.
The EBA is interested in collecting views on whether the baseline scenario is appropriate and balanced between the need to recognize the European Banking Union integration process and the strong desire to apply and fully adhere to Basel international standards. Should respondents be more towardsfavouring options a), b) or c), kindly comment on whether the proposed range(s) is either i) appropriate, ii) too wide, or iii) too narrow. Answers to question and options laid described above are most welcome when considering the need and intention of the EBA to stay as closely aligned with the international standards as possible.
According to article 131(18) of CRD5, the EBA was mandated to “develop draft regulatory technical standards to specify, for the purposes of this Article, the methodologies in accordance with which the competent authority or the designated authority shall identify an institution or a group headed by an EU parent institution, an EU parent financial holding company or by an EU parent mixed financial holding company as a G-SII and to specify the methodology for the definition of the sub-categories and the allocation of G-SIIs in the sub-categories based on their systemic significance, taking into account any internationally agreed standards”.This mandate includes the specification of the additional identification methodology introduced by co-legislators in article 131(2a) of CRD5, the rationale of which is set out in recital (28) of the amending directive : “The progress made in terms of the common approach to resolution resulting from the reinforcement of the single rulebook and from the establishment of the Single Resolution Mechanism (SRM) has significantly developed the ability to orderly resolve cross-border groups within the banking union. Therefore, and without prejudice to the capacity of competent or designated authorities to exercise their supervisory judgment, an alternative score reflecting that progress should be calculated and competent or designated authorities should take that score into consideration when assessing the systemic importance of credit institutions, without affecting the data supplied to the BCBS for the determination of international denominators. EBA should develop draft regulatory technical standards to specify the additional identification methodology for global systemically important institutions (G-SIIs) to allow the recognition of the specificities of the integrated European resolution framework within the context of the SRM”
In the draft RTS, EBA suggests to introduce a number of constraints to the potential reduction in the score due to the additional identification methodology:
• First, in recital (4) that “the additional overall score obtained for each entity with cross-border activities within the Member States participating in the Single Resolution Mechanism, on the basis of which this supervisory judgement could be applied, should be constrained to a maximum decrease of 10 basis points from the original GSII score, in line with the international standards”.
• Second, a dedicated box in paragraph 5a of article 5 suggests that “in order to remain in line with the BCBS framework” EBA contemplates three alternative constraints, including but not limited to the above-mentioned 10 bp cap.
France is of view that such constraints (all three options contemplated by EBA) are without legal basis and contradict the clear intention of the EU co-legislators. Introducing quantitative limitations to the benefits drawn from the alternative score is clearly an “essential element of the legislative act” (within the meaning of article 290 TFEU). It would belong to a level 1 act, if co-legislators had desired such limitations in the carefully balanced political compromise which they struck in 2018. Actually, the co-legislators did not ignore framing the downward discretion, so that EBA should not feel the need to propose framing in its own initiative (an initiative which it does not legally enjoy anyway). Indeed in the course of the negotiation, when discussing the possibility that a bank could be removed from the list of GSIIs due to the alternative scoring methodology, the co-legislators have eventually decided that the downward discretion in article 131(10)(c) shall not allow to de-designate a GSII : there is effectively a floor to the lowest bucket associated with a 1% buffer rate. This decision evidences the political/”essential” nature of any quantitative constraints to the alternative scoring methodology. EBA has no legal basis to add further constraints via the RTS.
Besides, the constraints proposed by EBA are not grounded in the BCBS framework either. The BCBS framework already provides the discretion for supervisors to re-allocate a given GSII upwards or downwards in the scale of buckets (potentially more than only one bucket up or down). The BCBS standard does not contemplate any quantitative constraints like the ones contemplated by EBA, it simply requires due justification in exercising the discretion. The EU additional scoring methodology is precisely meant to objectivise the exercise of the downward discretion already provided for in the Basel framework.
The EBA should strictly stick to the competences it was entrusted with by its founding regulation, and within the specific mandate of Article 131(18) CRD.