The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms. The published discussion paper gives an opportunity to the industry to comment on the proposed classifications of institutions as well as on the metrics used for proportionality assessment. Feedback period for the discussion paper ends on October 22, 2021, as mentioned in the EBA press release.
EBA developed a proportionality assessment methodology to set a high-level framework for assessing the need for applying proportional treatment of certain institutions in the relevant EBA Regulation. With this methodology, EBA intends to provide policy experts with a reference point that will assist them in the development of impact assessments that provides evidence on the need for applying proportional treatment of institutions. The proportionality assessment methodology entails the following two steps:
- Definition of classifications. The first step proposes three categorizations for credit institutions and a categorization for investment firms. Although all categorizations comprise a different mixture of size and risk profile discriminatory criteria, the discrimination according to size is more predominant in two categorizations of credit institutions (Classification I and Classification III), while the business model categorization (Classification II) addresses the risk profile of credit institutions as indicated by the business model (based on the stock of exposures), international activity, and systemic importance. Finally, the categorization of investment firms (Classification IV) constitutes a well-balanced mixture of size and risk profile discriminatory factors.
- Definition of metrics for proportionality assessment. This step aims to suggest a set of predefined metrics to evaluate the impact of regulations on institutions that could result in a proportional application of certain regulations. The predefined metrics suggested in the discussion paper evaluate the impact on regulatory capital and liquidity, impact on the cost structure of credit institutions and investment firms, and impact on the wider economy, including impact on lending and impact on stakeholders. As far as possible, EBA will use already existing data from its database of supervisory reporting without requesting additional input from competent authorities or institutions. However, for new pieces of regulation additional information requests are often the only viable source to gather reliable data. In case of need for additional information requests, EBA will evaluate whether there is need for a quantitative data collection, a qualitative questionnaire, or a combination of these tools for the conduct of the assessment. Depending on the regulation in question, additional tailor-made metrics could be useful and even necessary to either complement or replace the predefined metrics.
EBA already uses part of the proposed classifications in its work involved with the Basel III monitoring exercise—namely, Classification I and Classification II. However, EBA identified the need to expand the classifications to align with the classifications provided by the EU Regulation, such as the revised Capital Requirements Regulation (Classification III) and the Investment Firms Regulation (Classification IV). EBA intends to standardize the classifications and metrics for proportionality assessment, in an effort to enhance common understanding on how proportional treatment in the EBA Regulation is being assessed.
Comment Due Date: October 22, 2021
Keywords: Europe, EU, Banking, Securities, Investment Firms, CRR2, IFR, Proportionality, Basel, Reporting, Regulatory Capital, EBA
Previous ArticleBoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.