Prudential Supervision

No. Cross sector and cross standardized/LGD banks consistency should be a factor, and the article/criteria should reflect clearer references to the goal to be achieved by using this lever, as well as the case scenario where risk weights/LGD's are reduced again, as well as an indication when the risk weights should be at their highest and when at their lowest as a result of these 'conditions' pertaining. Lastly, the standards lack a clear communication strategy for these (expected to be) market moving decisions. See the attached letter/blogs for further information.
Loss experience and loss expectation as key factors risk making the standards procyclical. See the attached letter/blogs for further information on this analysis and suggestions for improvement. In addition, the standards now do not specify the timing of either going up or down in setting risk weights/LGD's. Though this could be deduced from the impact assessment, this could be made more clear in the standards themselves if this specific indicator is maintained, and to maintain a level playing field should be made binding if only to shelter the authority in charge from political and short term media pressure. The lowest risk weight/LGD should be reserved for the depth of the crisis, not for normal times.
No, as the benchmark chosen appears to work in a procyclical manner. See the attached letter/blog for more information and suggestions.
No. These do not appear to clearly specify what is the main purpose of these standards: dampen immovable property markets, protect the banking sector, specific banks or the entire financial sector, or all or none of these. The main purpose should be set out, with other factors ranking lower. The role of ESCB/central banks and ESRB/national financial stability organs-warnings should also be specified, and the weight given to such if they go counter to micro prudential bank supervisory purposes. The correct wording should follow from a clearly ranked goal for going up or down in risk-weight and LGD-setting. See the attached letter/blogs.
No, also see the answer to question 3, and the attached letter/blogs.
No. See the answers above for most issues. Specifically, it is not correct to not set indicative benchmarks for LGD. There is now no level playing field between standardised banks and IRB banks on this issue, and no level playing field between IRB banks. It appears that banking supervisors are unclear whether for IRB banks the correct route is through this lever (which would be transparent), or through either the model approval process or the pillar 2 process. This leaves too much arbitration by the banks and national authorities, and a lack of transparency.
No, see the answers to earlier questions relating to unclear goals and unclear results, and the attached letter/blog
Yes. Preferably a scenario analysis should be performed and published as to the moments in time e.g. in the period 2000-2014 when national supervisors would have wished they would have used this lever, how they would have used it, and the estimated first and second round effects of such increases or decreases. This exercise would help specify the correct indicators for action. See the attached letter/blog.
Dr Roel Theissen
P