Cebs advises on options and national discretions in the CRD

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LONDON - The Committee of European Banking Supervisors (Cebs) has published its second advice on options and national discretions in the Capital Requirements Directive.

Following Cebs' advice regarding the reduction of such options and discretions published in October 2008, the European Commission requested further technical advice on eight national discretions and on an additional group relating to real estate, "where more granularity, criteria or impacts is needed, should those options be removed or transformed into a general rule".

The short time period was not long enough for a public consultation or to conduct an impact assessment, but Cebs has confirmed that it requested industry input on the national discretions and on the recognition of other unfunded credit protection for dilution risk, as these discretions were highlighted as being of special interest for some parts of the industry in the first Cebs advice.

CEBS proposes to include additional criteria in the respective provisions in the Capital Requirements Directive on the national discretions on the treatment of high-risk items and on the recognition of other physical collateral. It suggests the national discretions on the recognition of other unfunded credit protection for dilution risk and on the recognition of receivables as collateral be kept, and that further work be conducted on the remaining discretions for which further technical advice was sought (that is, on the adequate percentages to calculate potential future credit exposures, on guidance to harmonise the treatment of entities as 'public sector entities', on the appropriate treatment of covered bonds, on prudence of the treatment of real estate as collateral and on guidance to harmonise the treatment of eligible 'short-term exposures').

Click here for the full CEBS paper.