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Response to consultation on Guidelines on limits on exposures to shadow banking
Go back2. Do you agree with the approach the EBA has proposed for the purposes of establishing effective processes and control mechanisms? If not, please explain why and present possible alternatives.
We support the EBA’s view that it is premature to introduce a quantitative limit to banks’ exposures at individual exposure or aggregate level, not least because the current definitions are so wide (see our response to Q1).
The elements listed for establishing effective processes and control mechanisms are current good practice amongst FLA members.3. Do you agree with the approach the EBA has proposed for the purposes of establishing appropriate oversight arrangements? If not, please explain why and present possible alternatives.
Similarly, we support the EBA’s approach in respect of the criteria for establishing appropriate oversight arrangements.4.Do you agree with the approaches the EBA has proposed for the purposes of establishing aggregate and individual limits? If not, please explain why and present possible alternatives.
We agree with the elements listed in the draft Guidelines. Where the paper refers to setting ‘tighter limits to individual exposures’, we would like clarification of what ‘tighter’ relates to. We are concerned that if, in future, banks were required to set quantitative limits on individual exposures, this would be unmanageable. This is because daily market fluctuations could result in a shadow banking customer inadvertently exceeding the prescribed limit. It would also involve costly changes to IT systems.5. Do you agree with the fallback approach the EBA has proposed, including the cases in whichit should apply? If not, please explain why and present possible alternatives. Do you think that Option 2 is preferable to Option 1 for the fallback approach? If so, why? In particular: Do you believe that Option 2 provides more incentives to gather information about exposures than Option 1? Do you believe that Option 2 can be more conservative than Option 1? If so, when? Do you see some practical
We prefer Option 2, which is more flexible. Option 1 is unnecessary because it does not bestow any benefits on a bank which complies with some of the elements of the principle approach.6. Taking into account, in particular, the fact that the 25% limit is consistent with the currentlimit in the large exposures framework, do you agree it is an adequate limit for the fallback approach? If not, why? What would the impact of such a limit be in the case of Option 1? And in the case of Option 2?
Yes. It is important to have a consistent approach.Name of organisation
Finance & Leasing Association
