23 March 2006
The Committee of European Banking Supervisors (CEBS) today starts a public consultation on additional technical guidance on application of the supervisory review process under the Capital Requirements Directive (CRD).
The consultation paper (CP11) complements CEBS guidelines on the Supervisory Review Process issued in January 2006. They set out technical guidelines with regard to the management of the interest rate risk arising from non-trading activities and of concentration risk. The consultation period runs until 23 June 2006.
The supervisory review process is designed to enhance the link between the risks taken on by credit institutions and investment firms, the management of those risks, and the capital they hold against them. The cornerstone of the supervisory review process will be a structured dialogue between institutions and supervisors when reviewing and evaluating the institution's risk profile and capital needs.
In relation to interest rate risk in the banking book, CEBS proposes common guidance on how the interest rate risks could be measured and managed by institutions and assessed by supervisors in the context of the supervisory review process. With regard to concentration risk, market participants are invited to provide input on guidance to both supervisors and institutions on the measurement and management of this risk.
CEBS is in parallel conducting a stock take of industry practices with regard to the measurement of single-name concentration risk, but also on concentration risk practices more generally, in the context of the call for technical advice from the European Commission on the review of the definition of large exposures rules.
CEBS is aware that the industry is now faced with two related pieces of work from CEBS on concentration risk. CEBS would nevertheless prefer to run the two in parallel to meet its timetable to respond to the Commission while preparing its Pillar 2 guidance.