Response to consultation on Guidelines on limits on exposures to shadow banking
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• to set a materiality threshold at sub-sector level (the entities under the shadow banking umbrella are too diverse to be grouped under one single brand),
• these additional requirements shall not place banks in a situation where they are either co-supervisors of the shadow banking entities or rule them out of business because of capital surcharge considering prudential regulation already imposes risk weightings.
We think that wording in points e) or f) for example is a bit too rigid, because it may place banks in a situation where it is impossible to fully assess all the impacts and links mentioned which would translate into forbidding to do business with entities in the shadow banking perimeter, which may by nature not be easy to evidence or circumscribe.
Concretely we fear that this approach will put the burden of supervising the shadow banking entities onto bank shoulders, what would in turn have the perverse effect of reinforcing dealings between shadow banking entities purely outside of the banking sphere, an objective contradictory with the aim of displaying more light on these activities. That is why we would advise to create in the first place regulations at EU level to deal with the likes of peer-to-peer financing or crowdfunding or alternative credit channels/operators.
Finally, we note that if an authority is not satisfied with the prudential approach of one of its supervised institutions it may still rely on the SREP process to force additional capital buffer.
This said it is difficult to judge if option 2 will be detrimental compared to option 1. We note that under the scenario presented, it is only because the bank was able to assess exposures to C and D that option 2 is superior, which may not always be the case, thus depending on scenarios both options may end up in similar or very close situations. However, option 2 should be easier to manage, as it is less granular, but it shall be declined in sub-sectors of shadow banking entities.
2. Do you agree with the approach the EBA has proposed for the purposes of establishing effective processes and control mechanisms? If not, please explain why and present possible alternatives.
The approach proposed appear sensible, however we would propose at least:• to set a materiality threshold at sub-sector level (the entities under the shadow banking umbrella are too diverse to be grouped under one single brand),
• these additional requirements shall not place banks in a situation where they are either co-supervisors of the shadow banking entities or rule them out of business because of capital surcharge considering prudential regulation already imposes risk weightings.
We think that wording in points e) or f) for example is a bit too rigid, because it may place banks in a situation where it is impossible to fully assess all the impacts and links mentioned which would translate into forbidding to do business with entities in the shadow banking perimeter, which may by nature not be easy to evidence or circumscribe.
Concretely we fear that this approach will put the burden of supervising the shadow banking entities onto bank shoulders, what would in turn have the perverse effect of reinforcing dealings between shadow banking entities purely outside of the banking sphere, an objective contradictory with the aim of displaying more light on these activities. That is why we would advise to create in the first place regulations at EU level to deal with the likes of peer-to-peer financing or crowdfunding or alternative credit channels/operators.
3. Do you agree with the approach the EBA has proposed for the purposes of establishing appropriate oversight arrangements? If not, please explain why and present possible alternatives.
Conceptually the approach may be sound, but it places all the burden of supervision and control on the banking entities that are not equipped nor assigned to “market supervision”. In addition we remind EBA that there already exist risk weighting criteria for many of the transactions performed with clients/debtors or generally counterparties and do not see the need to add a specific layer for these broad base of entities. What counts in the end is ensuring systemic risk management and we are not convinced that entities as defined in the present scope are actually creating additional systemic risk in a way that would spread to banks and the financial system as a whole.4.Do you agree with the approaches the EBA has proposed for the purposes of establishing aggregate and individual limits? If not, please explain why and present possible alternatives.
We do not agree. First the concept of shadow banking will remain complex to define, then the list of entities covered is in our view not appropriate and most of these entities will in the context of interactions with banks be under regulatory requirements and subject to risk weightings. Hence we do not share the view that an additional layer needs to be applied without discrimination. It may be that some of the entities present an extra level of potential risks but that will have to be addressed under CRD/CRR provision for specific transactions. It is a case-by-case analysis, depending on the real business model and then subject to each bank risk appetite. It should be noted that in many cases the entities covered are facilitators of liquidity or credit transmission/access to finance to the economy and thus imposing additional constraints only on the bank side, which will also play against the CMU objectives.Finally, we note that if an authority is not satisfied with the prudential approach of one of its supervised institutions it may still rely on the SREP process to force additional capital buffer.
5. Do you agree with the fallback approach the EBA has proposed, including the cases in whichit should apply? If not, please explain why and present possible alternatives. Do you think that Option 2 is preferable to Option 1 for the fallback approach? If so, why? In particular: Do you believe that Option 2 provides more incentives to gather information about exposures than Option 1? Do you believe that Option 2 can be more conservative than Option 1? If so, when? Do you see some practical
No, we do not agree. Conceptually we do not support the principle of using banks as co-supervisory authorities for shadow banking supervision. The types of entities under the umbrella “shadow banking” are to diverse to be considered as a single group. Furthermore, it is not clear if this proposal would come on top of other risk-weighting criteria, what would then be extremely limitative. Generally speaking, we consider that banks shall handle their transactions with these entities on risk basis and do not agree with the one size fits all approach to add by default a fixed percentage limit.This said it is difficult to judge if option 2 will be detrimental compared to option 1. We note that under the scenario presented, it is only because the bank was able to assess exposures to C and D that option 2 is superior, which may not always be the case, thus depending on scenarios both options may end up in similar or very close situations. However, option 2 should be easier to manage, as it is less granular, but it shall be declined in sub-sectors of shadow banking entities.
6. Taking into account, in particular, the fact that the 25% limit is consistent with the currentlimit in the large exposures framework, do you agree it is an adequate limit for the fallback approach? If not, why? What would the impact of such a limit be in the case of Option 1? And in the case of Option 2?
The ABBL does not support the 25% limit of the eligible capital to aggregate exposures to shadow banking entities proposed in the fall-back approach. This approach is not consistent with the large exposure framework and there is no rationale for such an approach. The large exposure framework does not provide a limit on aggregate exposures and we believe the guidelines on limits to exposure to shadow banking entities should not provide such a limit. Again, this approach has no rationale, nor justification in the large exposure framework proposed in the CRR. Furthermore as underlined earlier, we consider erroneous the approach of shadow banking as a “single” category item as underlying business models due to the fact that market structures and risk factors are different.Upload files
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