The Committee of European Banking Supervisors (CEBS) is today publishing additional technical guidance on application of the supervisory review process under the Capital Requirements Directive (CRD).
The technical guidance complements CEBS guidelines on the Supervisory Review Process issued in January 2006. The supervisory review process is designed to enhance the link between the risks taken on by institutions, the management of those risks and the capital they hold against them. The cornerstone of the supervisory review process will be a structured dialogue between institutions and supervisors when reviewing and evaluating the institution’s risk profile and capital needs.
CEBS published on 3 October 2006 the first part of its 11th Consultation Paper (CP11) on interest rate risk in the banking book. CEBS is now issuing the second part of that paper on concentration risk under Pillar 2, which proposes common high level guidance on how such risk could be managed by institutions and assessed by supervisors.
These guidelines were subject to public consultation, which ended on 23 June 2006, generating 11 responses, all publicly available on the CEBS website. They also benefited from constructive dialogue which took place with market participants.
As a result of the consultation, the level of prescriptiveness has been eased, the principle of proportionality reaffirmed, and the guidelines amended to better reflect some of the approaches of more advanced institutions using economic capital modeling techniques.
The publication of these guidelines had been delayed in order to reflect the results of the CEBS survey of market practices with regard to the measurement and management of large exposures and concentration risks which was undertaken as part of CEBS work in relation to a call for advice from the Commission and published in August.
CEBS considers it is important to issue additional technical guidance on concentration risk in readiness for the implementation of the CRD and to promote a consistent implementation of Pillar 2. The guidelines will be subject to review in light of experience and further market developments.