Response to consultation on draft Guidelines on triggers for use of early intervention measures
Go back
We have a particular concern about the provision of paragraph 26 of the draft guidelines. Though the EBA mentions the guidelines do not establish any quantitative thresholds for indicators that could be perceived as new levels for regulatory requirements for capital or liquidity, however we are scared the provision of this paragraph may inevitably create a new capital requirement, which is not consistent with EBA’s initial statement.
We also believe there are potential unintended consequences of this proposed trigger. We are concerned that including it in the guidelines would hard-wire the level of total capital plus 1.5% in the single rulebook and in practice create a new regulatory capital buffer. The trigger for early intervention should be consistent with the supervisory powers under article 102 of Capital Requirement Directive IV (‘CRD IV’ No 2013/36) which is set at the total capital level (including Pillar 2 and buffers). It would not be consistent with article 27(1) of BRRD, to impose early intervention measures at an earlier stage than supervisory powers under articles 102 and 104 of CRD IV. Furthermore, breaches of buffers are regulated separately according to CRD and should not per se be subject to additional early intervention measures according to BRRD.
Nevertheless, the examples of significant events which should be considered as possible triggers for the decision whether to apply early intervention measures contained on pages 15 and 16 after paragraph 30 may be considered also as the type of events which would also prompt the institution to consider implementing its recovery options. We think that bank management should be primarily responsible for ensuring the bank recovers from significant events. Early intervention should only be applied where a firm does not implement recovery measures or they fail.
We are also cautious to link automatically linking ratings downgrades with early intervention triggers. We have to remember that rating downgrade can occur automatically as a consequence of downgrade in sovereign credit ratings of the country where institution has its headquarter. It occurs independently of the domestic exposure of each institution. Therefore, the proposed wording of this significant event is in our opinion too broad.
Question 2: Do you consider the level of detail used in the draft Guidelines to be appropriate?
The proposed level of detail included in the draft guidelines can be recognized as generally appropriate. However, we recommend to level of details in different part of guidelines. This level is quite high in SREP area but is simultaneously much lower in area of material determination or anomalies of key institution indicators.Question 3: Do you have any comments on the proposed specification of early intervention triggers based on the outcomes of SREP?
The interaction between supervisory measures imposed in response to the SREP assessment and those imposed as early intervention measures should be carefully considered. While the outcome of SREP assessments is a relevant consideration when competent authorities are considering taking early intervention action, we see early intervention as a distinct process with a different purpose. Therefore, a particular SREP score should not automatically lead to early intervention measures being taken.Question 4: Do you have any comments on the proposed approach to use material deterioration or anomalies in key indicators in deciding whether there is a need to apply early intervention measures?
As we expressed earlier the scale of indicators (indicated in paragraph 21) to be monitored for early intervention purpose is very broad. We would like to remind that we have the occasion to comment simultaneously the EBA draft guidelines concerning the quantitative and qualitative indicators used for recovery plan (EBA/CP/2014/28). We recommend strongly to link these requirements flowing for banks from these guidelines with triggers for early intervention tools. In our opinion nearly all indicators set up for recovery plan on individual level could be used as the rational trigger for early intervention measures. As in the draft of guidelines on the quantitative and qualitative indicators used for recovery plan we are quite pessimistic in applying the macro-economic indicators for early intervention measures.We have a particular concern about the provision of paragraph 26 of the draft guidelines. Though the EBA mentions the guidelines do not establish any quantitative thresholds for indicators that could be perceived as new levels for regulatory requirements for capital or liquidity, however we are scared the provision of this paragraph may inevitably create a new capital requirement, which is not consistent with EBA’s initial statement.
We also believe there are potential unintended consequences of this proposed trigger. We are concerned that including it in the guidelines would hard-wire the level of total capital plus 1.5% in the single rulebook and in practice create a new regulatory capital buffer. The trigger for early intervention should be consistent with the supervisory powers under article 102 of Capital Requirement Directive IV (‘CRD IV’ No 2013/36) which is set at the total capital level (including Pillar 2 and buffers). It would not be consistent with article 27(1) of BRRD, to impose early intervention measures at an earlier stage than supervisory powers under articles 102 and 104 of CRD IV. Furthermore, breaches of buffers are regulated separately according to CRD and should not per se be subject to additional early intervention measures according to BRRD.
Question 5: Do you have any comments on the proposed description of significant events that should be considered as possible triggers for the decision whether to apply early intervention measures?
We agree that certain events bear a risk of significant prudential impact on the institution and they should be considered as a trigger requiring further investigations. In this regard the text should be aligned with article 27 §1 of BRRD and should clearly state that early intervention measures may only be taken where the relevant “significant event” would leads to the institution infringing or being likely to infringe the requirements set out in Article 27§1 of BRRD.Nevertheless, the examples of significant events which should be considered as possible triggers for the decision whether to apply early intervention measures contained on pages 15 and 16 after paragraph 30 may be considered also as the type of events which would also prompt the institution to consider implementing its recovery options. We think that bank management should be primarily responsible for ensuring the bank recovers from significant events. Early intervention should only be applied where a firm does not implement recovery measures or they fail.
We are also cautious to link automatically linking ratings downgrades with early intervention triggers. We have to remember that rating downgrade can occur automatically as a consequence of downgrade in sovereign credit ratings of the country where institution has its headquarter. It occurs independently of the domestic exposure of each institution. Therefore, the proposed wording of this significant event is in our opinion too broad.
Question 6: 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?
We have no remarks to this question.Upload files
PBA response to EBA_CP_2014_21.pdf
(1.06 MB)