Response to consultation on Guidelines on methods for calculating contributions to Deposit Guarantee Schemes (DGSs)
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1-We ask for a better specification of NPL measure which, in our opinion, should be net of loan losses allowances as suggested also in the BIS proposal for a new standard approach in credit risk: a gross measure of NPL doesn’t take into account prudential policies set by individual banks on impaired loans which can counterbalance the country biases of the gross NPL measure. A lower weight for this single measure of the credit risk exposure would be also advisable to create room for a less “static” measure such as those assessing the credit loss absorbtion power implied in higher interest margins (our proposal is to use Net Interest Income or Net Revenues cyclically adjusted for credit cost).
2-Given the well known ongoing biases in the RWA framework, we propose to replace the RWA / Total Assets measure in “business and management” section by doubling the weight of the RoA measure. A RWA / Total Asset measure would thus be left to the discretional assessment by national authorities. Given the strong procyclicality of RoA, a cyclically adjusted RoA would also be preferable in our opinion to prevent underprovisioning.
Question 2: Do you consider the level of detail of these draft Guidelines to be appropriate?
AppropriateQuestion 3: Is the proposed formula for calculating contributions to DGS sufficiently clear and transparent?
Clear and transparentQuestion 4: Considering the need for sufficient risk differentiation and consistency across the EU, do you agree on the minimum risk interval (75%-150%) proposed in these Guidelines?
We basically agree; a symmetric range (50%-150%) would have been more appropriate to allow an optimal calibration and to set an higher incentive for virtuous behaviors)Question 5: Do you agree with the core risk indicators proposed in these Guidelines? If not, please specify your reasons and suggest alternative indicators that can be applied to institutions in all Member States. Do you foresee any unintended consequences that could stem from the suggested indicators?
We basically agree but:1-We ask for a better specification of NPL measure which, in our opinion, should be net of loan losses allowances as suggested also in the BIS proposal for a new standard approach in credit risk: a gross measure of NPL doesn’t take into account prudential policies set by individual banks on impaired loans which can counterbalance the country biases of the gross NPL measure. A lower weight for this single measure of the credit risk exposure would be also advisable to create room for a less “static” measure such as those assessing the credit loss absorbtion power implied in higher interest margins (our proposal is to use Net Interest Income or Net Revenues cyclically adjusted for credit cost).
2-Given the well known ongoing biases in the RWA framework, we propose to replace the RWA / Total Assets measure in “business and management” section by doubling the weight of the RoA measure. A RWA / Total Asset measure would thus be left to the discretional assessment by national authorities. Given the strong procyclicality of RoA, a cyclically adjusted RoA would also be preferable in our opinion to prevent underprovisioning.
Question 6: Do you agree with the option to use either capital coverage ratio or Common Equity Tier 1 ratio as a measure of capital? Would you favour one of these indicators rather than the other, and why?
We strongly prefer the capital coverage ratio: the CET1 requirements are dimension-related so ignoring this factor would bias the measure in favour of large banks (required to build up more capital in consideration of the higher risks posed to the system).Question 8: Do you think that more guidance, or specific thresholds, should be provided in these Guidelines with regard to calibration of buckets for risk indicators, or minimum and maximum values for a sliding scale approach?
Maybe also the quantile specification of each bucket would have been useful at this level.Question 9: Do you agree with our analysis of the impact of the proposals in this Consultation Paper? If not, can you provide any evidence or data that would explain why you disagree or might further inform our analysis of the likely impacts of the proposals?
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