A risk based approach are to be preferred and we believe that the proposed model can serve as a ground for calculating contributions to DGSs. A model should be kept as simple as possible and the indicators should be based on existing information/statistics. However, our view is that national authorities should have enough flexibility to handle different business models across Europe and within the respective country – but still based on a harmonized model and calculation.
We think that the level of predetermined risk indicators, that adds up to 75 per cent of the total risk weight, is too high and does not leave enough room for the national authority to differentiate based on national conditions. Our suggestion is that 50 per cent is predetermined and the other 50 per cent should be a national choice. Flexibility is also important on each risk indicator.
Countries that have homogenous banking system do not need as much flexibility and do not have to use the flexibility, but it is important for countries with heterogeneous banking systems so that the model is capable of capture and measure risk.
Given that different countries choose to use different levels of fees for DGS, there is not a level playing field anyway between banks in different countries. It is therefore better that more national discretion is allowed in the model, so that national authorities can adjust the risk sensitivity in order to fir the national banking system.
We think that there should be room for flexibility also concerning the risk interval. As a minimum there should be 75-150 per cent – but we think that it should be 50-200 per cent as standard.
We do not think that leverage ratio is a good and useful indicator of risk. We think this indicator should be excluded. The risk weighted capital ratio could then have a higher weight – that is a better indicator of risk.
We would like to include a ”loss ratio” as a risk indicator for asset quality. It should be possible to include credit losses, historical, as one risk indicator. The area of asset quality should have a higher weight and one way of doing that is to include a ”loss ratio”. The weight on non-performing loans could then be lowered somewhat and we think that it is important to have a very clear definition of that measure.
In the area of business model we think that RoE is a better and more stable risk indicator than RoA. RoA could implicate that a bank with low risk, and therefore low RoA, could mean higher risk relative to other banks – although the opposite is true. Assets are often more volatile and influenced by the market sentiment than equity. We also think that volatility could be used as risk indicator for RoE (RoA).
If RoE is included as one risk indicator in the area of business model that area should have a higher weight.