All of the options (a, b and c) appear to have been drawn up with the intention of limiting the ability of competent or designated authorities to reduce the EU additional score or the resulting G-SII bucket allocation. We have therefore significant reservation as each of the options could be seen as being in breach of the Level 1 text (which does not foresee such a cap).
FBF is afraid that the proposed RTS will deprive article 131 § 2a and 131 § 10 (c) of CRD V of their effectiveness. Moreover, FBF recalls that the European Commission, when adopting level 2 legislation according to article 290 TFEU, is not allowed to touch upon essential elements of level 1 legislation.
However, it appears that the proposed RTS contradict both of these principles.
Indeed, the CRD V leaves little room for interpretation: it clearly provides that the competent authorities « shall » take into account the newly inserted additional overall score in the identification methodology for G-SIIs in its article 131 § 2a. Moreover, if article 131 § 10 (c) does allow competent authorities to use sound supervisory judgment to reallocate a G-SII from a higher subcategory to a lower subcategory taking into account the abovementioned additional overall score, nothing in the said article allows competent authorities to constrain the impacts of the additional overall score « to a maximum decrease of 10 basis points from the original G-SII score » as provided for in the consultation paper on the proposed RTS.
Overall, if article 131 § 2a and 131 § 10 (c) do leave room for supervisory judgement, they do not allow for the creation of a general and abstract limitation of the scope of the additional overall score such as contemplated in the consultation paper.
FBF therefore wishes to underline the fact that such a general and abstract constraint resulting from level 2 legislation - therefore binding on competent authorities - bluntly contradicts the margin of appreciation granted to them by the CRD V in its article 131. The said Directive, while referencing BCBS principles notably in §28 of its preamble, clearly expresses a political choice : the legislators’ intention was to make sure that the progress made within the banking Union in terms of the ability to orderly resolve cross-border groups would be plainly accounted for by competent authorities when assessing the systemic importance of credit institutions.
All in all, if the proposed RTS were to be adopted in their current writing, not only would they be adopted in violation of CRD V, but they would also amount to a violation by the EU Commission of article 290 TFEU.
Options a) and b): We note that CRD V refers to 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 while EBA refers to the need to recognise the European Banking Union integration process which is a broader perimeter. Last but not least, even if the Banking Union was the appropriated metric, the ranges are far from reflecting progress made.
Under option a), beyond the fact that the 10pt cap has no justification the same cross-border Eurozone activity would receive different relative weightings across banks. Indeed, for a bank that already has significant presence across the Eurozone, and reaches the 10pt cap, any further cross-border acquisition or organic growth will continue to be penalised, whereas the same acquisition or business growth done by a group with a smaller pre-existing pan-Eurozone franchise will remain within the cap. This would lead to an inequitable treatment of institutions and furthermore it will penalise Eurozone players and will frustrate their growth. This was not the intention of the co-legislators. In our view, option a) is not an option.
Under option b), cross-border Eurozone activity would be treated equally but the proposed limit is contrary to the co-legislators intention and the calibration (25%) is far from reflecting the BU progress. 2 pillars out of 3 have been accomplished so far (i.e. the Single Supervisory Mechanism, and the Single Resolution Mechanism).
If the calibration is to be given some sort of mathematical significance, it should reflect progress towards Banking Union, even though this is a somewhat self-defeating attitude. If all measures designed to reflect the Banking Union are predicated on the success of other measures designed to enhance the Banking Union, then this becomes a recipe for failing to achieve Banking Union.
Regarding the 3rd pillar, significant progress have been made in the European Deposit Insurance Scheme (based on EBA updates data on Deposit Guarantee Schemes across the EU (https://eba.europa.eu/eba-updates-data-deposit-guarantee-schemes-across-eu) stating that target level of covered deposits, to be attained by July 2024, had already been achieved by 18 of the 37 DGSs in the EU).
Option c) among those presented appears therefore to be the best compromise between the CRD text and EBA’s strong desire to fully adhere to Basel International standards. Indeed, even if a limitation of decreases to one bucket was not mandated by the legislators, the real gain that industry would expect to receive is the room for manoeuvre within the existing bucket that will benefit all banks with intra EZ cross border activities, whether or not they actually receive a one bucket reduction.
According to CRD 5 Article 131(12): “The competent authority or designated authority shall notify to the ESRB the names of the G-SIIs and O-SIIs and the respective sub-category to which each G-SII is allocated. The notification shall contain full reasons why supervisory judgement has been exercised or not (…)”.
The intention of the EU co-legislators is clearly to be able to depart from the BCBS Standard; therefore, the result should not be submitted to BCBS views or reservation.
We suggest consequently that the results of the assessment process in Europe on an on-going basis would not require discussion or approval by the BCBS which is not clear from the suggested wording for the insertion of paragraph 5b in the consultation document.
The use of the average FX rate for the year has been a previous industry position, we remain supportive of this approach. One particular advantage of this method is that the effect of FX fluctuations that occur towards the end of the year are mitigated which removes the possible advantages or disadvantages of different currencies.
This would permit to reduce the need to keep a buffer for FX volatility for year-end management.
Owing to differences between the schedules of the annual Pillar 3 disclosure and GSIBs reporting and disclosure, we would like to ensure that there is a link to the section on institutions’ websites where investors can find the most up to date indicators that would meet the disclosure requirements set out in the consultation.
By way of background, we would highlight that some institutions disclose their Pillar 3 information for the beginning of March, when the deadline for GSIBs data disclosure is 30 April. We believe that the linkage to the most up to date indicators would be in the interests of all stakeholders, since the disclosure of the template directly in the Pillar 3 information would create a one-year delay to the information.