On April 22, 2016, two letters from Olivier Guersent, DG FISMA of the European Commission, to Andrea Enria, Chairperson of the European Banking Authority, on issues associated with its review of the Capital Requirements Regulation were published. The first letter, dated April 12, 2016, was in response to the EBA’s report on net stable funding requirements under the CCR. The EBA report concluded that NSFR standards developed by the Basel Committee on Banking Supervision fit well with the European banking framework but also flagged some European specificities. By the end of 2016, the Commission, if it deems appropriate, should submit a legislative proposal on the NSFR to the European Parliament and Council relying on the EBA Report when assessing the provisions of the Basel NSFR standard to ensure that a possible NSFR proposal does not hinder the financing of the real economy. The purpose of the letter is to request additional guidance on two areas of the EBA Report. First, with regards to the treatment of derivatives in the NSFR, the Commission is of the view that more specific analysis is required. The Commission expressed concern that the 20% required stable funding factor applied to gross derivatives liabilities and the recognition of margin received as compared to margin posts have not been comprehensively analyzed or subjected to the necessary extensive public consultation. Furthermore, the EBA should provide a complementary assessment on the impact of the provisions and an analysis of the impact on the treatment and calibration of derivatives.
The second area requiring further guidance concerns the effective application of the principle of “proportionality.” The Commission has requested alternative policy proposals on implementing this principle, in particular, if the EBA could assess the benefits of lower and less frequent reporting requirements and the introduction of another metric such as a core stable funding ratio for institutions that have a low funding risk profile. The Commission has requested that the EBA provide any analysis by July 2016, to assist in the Commissions timetable for a possible legislative proposal to update the implementing technical standard on NSFR reporting.
The second letter, dated April 18, 2016, is a request for advice from the EBA in relation to the revision of the own fund requirements for market risk as part of the Commission’s CRR review. The Commission is seeking technical advice to assist in its consideration of the impact of the agreed Basel Committee framework on minimum capital requirements for market risk. In particular, advice from the EBA is required to assess, primarily through a quantitative assessment, the impact for EU banks adopting the Basel Committee framework.
The letter on the NSFR is available at: http://www.eba.europa.eu/documents/10180/1349330/Reply+from+Olivier+Guersent+DG+FISMA+on+EBA+report+o n+NSFR.pdf/aac11003-bc6d-49f7-afbe-04495cab5c5d and the letter on market risk is available at: http://www.eba.europa.eu/documents/10180/1349330/Letter+from+Olivier+Guersent+DG+FISMA+on+CfA+CRR+O wn+Fund+Requirement.pdf/5229cbdb-4b4b-4b24-ab53-f27079d0250f.