In January this year the Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) published a joint comparison of the impact of different sectoral rules on the calculation of own funds of financial conglomerates. The report was produced by the Interim Working Committee on Financial Conglomerates (IWCFC).
The January report highlighted four main differences that should be addressed: the treatment of hybrids, the different approaches to deductions, the treatment of unrealised profits and revaluation reserves, and the differences in consolidation approaches and methods.
The current report is a quantitative analysis of the impact of the differences that were highlighted in the earlier report, based on fictitious numerical examples.
The report aims to provide objective figures and conclusions on the possible impact of the different sectoral rules. The report confirms that the differences can have an impact on the composition and amount of regulatory capital of a financial conglomerate. The report identifies that the differences in the types of capital elements eligible in each sector and the differences in the limits on the inclusion of eligible items may create distortions and influence the placing of certain assets or transactions within a conglomerate.
The analysis has been carried out on the basis of the current sectoral directives and the Financial Conglomerates Directive 2002/87/EC. It is important to note that the new Solvency II regime will have a significant impact on the calculation of the capital requirements and the availability of capital in the insurance sector after its implementation in 2012.
The report is part of the European Commission’s call for advice on sectoral rules on eligible capital.
For further information on both the January and August reports:
Comparison of the sectoral rules for the ewww.ceiops.org/media/files/publications/submissionstotheec/Comparisonofsectoralrulescapitalinstruments.pdfligibility of capital instruments into regulatory capital (January 2007). (PDF 416.17 KB)