Response to consultation on RTS on conditions for capital requirements for mortgage exposures
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There are concerns that the setting of higher risk weights and LGD floors may not be consistent across member states, and the EBA is requested to consider measures with which to control for such a scenario and the subsequent effects.
Question 2: Do you agree with the conditions for specification of the loss experience and the loss expectations? Do you agree with the adjustments allowed to be made to the loss experience on the basis of the forward-looking immovable property market developments?
In principle we agree with the conditions for specification of loss experience and loss expectations consultation in the consultation. However, we feel that it is important to ensure harmonisation and consistency in how specifications are made by competent authorities, in particular considering any judgemental aspects contained in those specifications. We would also encourage consideration on how adjustments made will ensure that standardised and IRB approaches are treated fairly.Question 3: Do you agree with the indicative benchmarks for the assessment of the appropriateness of the risk weights and to guide the setting of higher risk weights across immovable property markets in different member states as specified in Article 4(3) and 4(4)? What levels of these indicative benchmarks would be most appropriate and why?
We would encourage the EBA to undertake the necessary data collection and surveys, and consult competent authorities in member states in order to set appropriate indicative benchmarks.Question 4: Do you agree with the specification of the term of “financial stability considerations”?
We agree with the specification of “financial stability considerations”. We consider that an increased LGD floor may not be the ideal mechanism to control the overall systemic financial stability. However, in circumstances where it is deemed appropriate to increase standardised risk weights or LGD floors, the “financial stability considerations” described will inform the decisions made.Question 5: Do you agree with the other conditions for the setting of higher risk weights? (Please provide your feedback related to the indicative benchmarks (in Article 3(3) and 3(4)) in your response to Question 3 above.)
We would like to emphasise that the conditions for setting higher risk weights be clearly defined, and the populations for which increases are made are truly homogenenous according to the criteria specified (including loss experience and expectation). This should help to ensure that proposed increases do not disproportionately increase capital requirements for lower-risk portfolios than higher-risk identified within the same population identified for higher risk weights.Question 6: Do you agree with the conditions for specification of the exposure weighted average LGD and the LGD expectation? Do you agree with the adjustments allowed to be made to the average exposure weighted LGD on the basis of the forward-looking immovable property market developments? Do you agree that it is not appropriate to set indicative benchmarks for the setting of higher minimum LGD values because of the specificities of national immovable property markets and because of the relationship of the LGD parameter with the other internal model parameters?
We agree with the conditions for the specification of the exposure weighted average LGD and the LGD expectation, and adjustments allowed to be made to the average exposure weighted LGD on the basis of the forward-looking immovable property market developments. Regarding the setting of indicative benchmarks for the setting of higher minimum LGD values, it is agreed that there are a number of specificities of national immovable property markets, and competent authorities within member states would be expected to have different interpretations of loss experiences and different predictions for future loss expectations; this may limit the usefulness of any indicative benchmarks set. Similarly for institutions within member states, the relationship between the LGD parameter and other internal model parameters will affect the degree to which a higher LGD floor will affect capital requirements of exposures within the homogeneous populations identified.There are concerns that the setting of higher risk weights and LGD floors may not be consistent across member states, and the EBA is requested to consider measures with which to control for such a scenario and the subsequent effects.