EUU, Alm.del - 2015-16 - Bilag 472: Regeringens høringssvar og notat vedr. Baselkomitéens konsultation om revision af standardmetoden for kreditrisiko

Europaudvalget 2015-16
EUU Alm.del Bilag 472
Offentligt

ANNEX

18. March 2016

Danish response to the second consultative document from the

Basel Committee on revisions to the standardised approach for

credit risk

General remarks

As mentioned in our general comments, we find that differences between

jurisdictions must be taken into account.

In this context, we generally welcome the move away from harmonised

multi-dimensional risk drivers towards the reintroduction of ratings, alt-

hough we recognize that this approach is not flawless either. The multi-

dimensional risk drivers did not capture the differences between countries

with respect to legal systems, insolvency procedures, loss experience etc.

which all affect risk. Furthermore, the risk drivers implied more complex-

ity as well as lower risk sensitivity and comparability. Allowing the use of

ratings could strengthen the risk sensitivity and comparability across ju-

risdictions as ratings take country specific characteristics into considera-

tion to better reflect the true underlying risks.

National discretions in certain selected areas where jurisdictions histori-

cally differ significantly will also strengthen the risk sensitivity and com-

parability. Therefore, we suggest that such national discretions should be

allowed to a higher extent. Such national discretions could then be ac-

companied with clear criteria for their specific application.

As mentioned in our general comments, the current Basel standard ap-

proach and the consultative document does not grant covered bonds a

specific treatment. Grouping covered bonds together with other exposures

runs the risk of overstating the risk embedded in covered bonds. In Eu-

rope covered bonds have a specific treatment and it is in our view very

important that we can keep this treatment in order to reflect the low risk

in covered bonds. We therefore find that the Basel Committee should take

this issue into consideration.

Furthermore, it is essential to avoid too much complexity and reduce the

administrative burden for institutions using the standardised approach.

This is important in order to preserve a competitive environment among

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institutions of different sizes. The second consultative document has re-

duced the complexity and administrative burden considerably compared

to the first consultative document. This should continue to be a high prior-

ity when finalising the risk weight calibration.

We support the Basel Committee’s view that the objective of the revised

standardised approach is not to increase overall capital requirements. As

mentioned in our general comments, it is in our view equally important

that the calibration does not impose a capital requirement increase for

certain jurisdictions or specific low risk portfolios which is not justified

by risk. This needs to be carefully considered going forward.

Specific remarks

We support elements in the proposal which implies a more risk sensitive

approach in relation to the risk weights to real estate exposures. For in-

stance, we support that an exposure where repayment is materially de-

pendent on cash flows generated by the property is assigned a higher risk

weight. Also for residential real estate exposures, we support that the risk

weight varies dependent on the loan-to-value (LTV).

In our view, however, it is equally important that the revised standardised

approach remains risk sensitive when the LTV exceeds 100% for residen-

tial real estate exposure. If the full exposure is assigned to the counterpar-

ty’s risk weight, the assigned risk weight fails to take into account the low

risk entailed in the secured part of the exposure. We find that this lack of

risk differentiation introduces a cliff effect which furthermore goes

against the objective of risk sensitivity. A more risk differentiated ap-

proach for LTV exceeding 100% should be considered. In our view, it

would be more risk sensitive to take the proposal’s other risk weights as

the basis. In this way, if the LTV exceeds 100% the part of the exposure

with LTV within 100% could be assigned a preferential risk weight of

55%, reflecting the lower risk of such an exposure, while the part of the

exposure with LTV exceeding 100% could be assigned a higher risk

weight reflecting the higher risk of this part of the exposure.

Furthermore, Denmark supports that the credit conversion factors (CCF)

for off-balance sheet exposures currently do not sufficiently reflect the

underlying risks in these exposures. In particular, from a risk perspective

we agree that the CCF for the low risk category should be higher than 0%.

However, a 20% CCF is in our view too conservative and may impose an

unwarranted capital requirement increase. This should be carefully as-

sessed in the impact study.

In the revised standardised approach, a 50% risk weight add-on to certain

exposures with a currency mismatch is proposed. This treatment is pro-

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posed where the lending currency differs from the currency of the bor-

rower’s main source of income and where the exposures are unhedged.

We agree that, in general, exposures with currency mismatch are subject

to a higher credit risk. However, in our view the currency mismatch

should take institutional currency arrangements into account. In this re-

gard, e.g. the ERM II fixed exchange rate system should be taken into

account as the exchange rate risk is significantly reduced under this sys-

tem. This is an example where a national discretion taking into account

institutional arrangements is appropriate.

Final remarks

There is a link between the revised standardised approach and a potential

new capital floor for IRB institutions. In case the revised capital floor is

not introduced as a supplementary measure, the revised capital floors

could lead to high capital requirement increases for low risk business

models which are not justified by risk. It will be very important to avoid

such unintended consequences when evaluating the impact study and re-

lated proposals.

In addition, we find it important that risk-based capital requirements are

comparable between jurisdictions. The risk weight calibration should not

result in unwarranted incentives and affect truly low risk portfolios unin-

tendedly. In this regard, the possibility of national discretions should be

maintained where such discretions take into account national specificities

with regard to legal systems, insolvency procedures, loss experience etc.,

lead to higher risk sensitivity and comparability.