Response to consultation on guidelines on criteria to to assess other systemically important institutions (O-SIIs)
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Given the very flexible and partially qualitative nature of Annex II, we recommend great care over the possible use of O-SII designation in other parts of the regulatory framework, notwithstanding its appeal as a convenient, composite indicator of systemic risk.
Significant related matters
We support full transparency on the part of supervisors concerning publication of the methodology for setting the O-SII buffer requirement (as required under para 15), with particular reference to the inter-action between the O-SII buffer and any G-SIIB buffer that may affect either the same entity or its banking group overall. It is of great importance there is a consistent approach taken by supervisors across all jurisdictions in order to ensure there is a level playing field.
The industry will welcome further clarification, in the light of consultation responses, of the timeline for application of the guidelines, for their publication on the EBA website and for incorporation into national supervisory procedures. The latter should include clarity on O-SII buffer requirement methodology, since in our view there remains a risk of double-counting of requirements, e.g. for a group operating company O-SII through a direct O-SII charge on the one hand being compounded by an internal capital cost deriving from its group parent's G-SIIB charge on the other. We are not convinced that the simply enunciated principle of 'the higher of the G-SIIB and O-SII charges will apply' will come to bear straightforwardly in such circumstances.
Question 2: Do you agree that there may be Member States where small institutions are unlikely to pose systemic threats to the domestic economy? Do you think the option to exclude these institutions could reduce the administrative burden for institutions, or do you think there is a risk that the results of the analysis could be distorted by excluding them?
It is unclear how the scoring calculation and the thresholds of 0.01% (para 10) and 4.5 basis points (para 13) are intended to work, separately or in conjunction with each other. This is especially the case for Annex II criteria that are qualitative. It is a concern of many of our members that the thresholds are too low. It is appreciated that, historically, smaller institutions have also triggered systemic fragility. Nevertheless, we believe a threshold of a minimum 1% but probably even higher would suffice under the general Annex 1, with the criteria in Annex II serving to capture the characteristics of small and/or specialised entities.Question 3: Can you think of any additional optional indicators that should be added to the list in Annex 2?
The Annex II optional indicators appear to give national supervisors unlimited discretion to extend the list of O-SIIs in their jurisdiction. However, we welcome the appearance here of the criterion of 'Degree of resolvability', which should probably be elevated in due course to Annex 1 in view of the degree of correlation between high resolvability and lower systemic risk.Given the very flexible and partially qualitative nature of Annex II, we recommend great care over the possible use of O-SII designation in other parts of the regulatory framework, notwithstanding its appeal as a convenient, composite indicator of systemic risk.
Significant related matters
We support full transparency on the part of supervisors concerning publication of the methodology for setting the O-SII buffer requirement (as required under para 15), with particular reference to the inter-action between the O-SII buffer and any G-SIIB buffer that may affect either the same entity or its banking group overall. It is of great importance there is a consistent approach taken by supervisors across all jurisdictions in order to ensure there is a level playing field.
The industry will welcome further clarification, in the light of consultation responses, of the timeline for application of the guidelines, for their publication on the EBA website and for incorporation into national supervisory procedures. The latter should include clarity on O-SII buffer requirement methodology, since in our view there remains a risk of double-counting of requirements, e.g. for a group operating company O-SII through a direct O-SII charge on the one hand being compounded by an internal capital cost deriving from its group parent's G-SIIB charge on the other. We are not convinced that the simply enunciated principle of 'the higher of the G-SIIB and O-SII charges will apply' will come to bear straightforwardly in such circumstances.