Pleose find ASF's response to the Commission's consultation on the CRD Review attached.

Transcription

1 ASSOûAT ON FR NrAISE DES SOCIÈ r S f rianc IEP.F5 Le Délégué Général Mr Patrick PEARSON Head of Unit Banking an Financial Conglomerotes DG Markt By markt-crd2008-survey@ec.europa.eu Paris, 16 June 2008 Dear Mr Pearson, Pleose find ASF's response to the Commission's consultation on the CRD Review attached. We remain at your disposai for any further information. Do not hesitate to contact me or Alain LASSERON at a.losseron@osf-fronce.com or Best regards, 24, avenue de la Grande Armée Paris cedex 17 Tél. : Fax: asf@asf-france.com Bruxelles: Rue du Luxembourg B-10oo Tél. : Fax: europe@asf-france.com Site:

2 ASF RESPONSE TO THE EUROPEAN COMMISSION'S WORKING DOCUMENT ON THE REVIEW OF THE CAPITAL REQUIREMENTS DIRECTIVE asf Document "CRD POTENTIAL CHANGES" The ASF (Association Française des Societes Financieres) is. according to the banking act of 24 January the representative body of ail specialized financial institutions in France. ASF currently has nearly 380 members. one half are subsidiaries of major deposit banks and the other half from other sectors (insurers. financial organizations. manufacturers. major retailers...). with outstandings of funding to the economy approaching 260 billion. nearly 20% of total outstanding credits to the economy in France. The activity of the members of the Association may be divided in four major areas (credit to individuals. credit to companies and professionals and among them leasing transactions. other financial services - including financial guarantees - and investment services) covering some 20 different financial products for companies and individuals. We wish draw your attention to several issues about the European Commission 1 s consulting document "CRD Potential Changes": 1 About large exposures regime -The document proposes to remove several exemptions of the article of Directive2006/48/EC concerning off-balance sheet items that therefore would receive a 100% risk weight. A - We are particularly concerned about the deletion of point s) at article that disposes member states may exempt "subject to the competent authorities' agreement, guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions, subject to a weighting of 20% of their amount". We don't understand the reasons of this increase in the weighting from 20 to 100%. In France certain activities on real estate (sales, renting, administration) must legally benefit from a guarantee for the reimbursement of funds, or transferable securities deposited at the operators (estate agent's). The guarantee may be given by a credit institution or by an insurance company. Granting of these guarantees is the single activity for these mutual guarantee schemes, specialized credit institutions, that play a leading role in this respect. Indeed, they are by far the first actors in granting these financial guarantees. and constitute half of the market (7 milliards euros guaranted outstandings, professionals guaranteed who manage assets or are property agents for assets). They perfectly know the economic sector of their customers consisted of professionais that ail are their members. The interest of their members is a good running of the whole profession. For this purpose, mutual guarantee schemes. managed by professionals of the real estate activities. implement numerous measures allowing to control very seriously the activity of their

3 members. They consist of a thorough knowledge of each member, its activity, a periodical examination of its accounts and economic data of its activity -audit- (evolution, comparison with the whole market). They also consist of the control of respect of the rules ethics stated by mutuai guarantee schemes and the profession. The breaches can lead to queries for modification in managing and even for penalties in the event of mistakes or professional misconducts, up to expulsion. This knowledge and this control allow to have a real control of the risks. ln such conditions, we do not understand a 100 % weighting regarding large exposures adoption proposai. Moreover, we are not aware of any difficulties in EU states having adopted the 20 % weighting and which would not have found any satisfying solution. Should the 100 % weighfing be adopted, that is to say five times more than nowadays, large exposures no longer be taken into account by the mutual guarantee institutions under the banking law. As a result we should notice a competition distortion disavantadging them when other companies, defined by an other status than the one of financial institution, and which do not depend on the same constraints, could set up business under a less restriclive regulation. The use of such status should be much more favourable without any obvious justification. Limiting intervention capacities from mutual guarantee institutions, due to 100 % compulsory weighting, would impact in a negative way the market knowledge and abilities. The efficient part played by the mutual guarantee institutions regarding market regulation, their assessment and their weight benefit straight away to practitioners and consumers. One should not forget that mutual guarantee institutions, financial institutions, play an important role especially in France, concerning the c1eaning measures implementation over the market edicted by the «loi Hoguet», 2 Jan. 1970, Knowing the role played by the mutual guarantee institutions as financial institutions, to grant financial guarantees, it should be better to keep the current 20 % weighting under the approval of the competent authorities, as it is provisioned by the Directive 2006/48. The condition of authorities approval would permit to take into account some states situations where the development of mutual guarantee institutions would not have reached a maturing level allowing a good risk handling justifying such rating. B- Real estate leasing -We support the Commission's proposai to recognize real estate for credit risk mitigation purposes by allowing a reduction of the exposure value by up to 50% of the value of the commercial property concerned. However we think this solution must be applied regardless of the approach chosen by the institution to calculate minimum capital requirements for credit risk, which is not c1ear in the text proposed for article of Directive 2006/48/EC that refers to exposure that "would receive a 50% risk weighting under articles 78 to 83". To avoid any ambiguity concerning this point, we suggest a new recital be included in the text of Directive as following : "For the purpose of the large exposure regime, the recognition of real estate collateral is equally available to ail institutions, regardless of the approach they have chosen to calculate minimum capital requirements for credit risk." 2

4 ln other respects, the text should take into account the fact. if conditions of provisions refered to under points 51 to 60. part 1 of annex VI of the Directive to apply the 50% risk weighting are fulfilled, the reduction of the exposure provided in article should automatically be applied and no longer be any national discretion. -At lost real estate under construction should receive a risk weighting other thon 100%. Indeed, experience shows defaults on real estate in the process of being built take place much less frequently thon defaults on other real estate ossets. Average recovery rates on these types of ossets are higher than 100%. implying that lessors actually are able to recover their entire dues. interest in arrears included. Moreover, recovery rates are not that different to those of some categories of fully built property. The average period between repossession of the osset and the resale is short and does not exceed the average period for completed buildings. As a consequence. we suggest to permit credit institutions to reduce the exposure value by a certain percentage (with a maximum less than 50%) of the value of the commercial property. C. Interbank exposures The "CRD potential changes" document proposes to remove present exemptions or special risk weightings for interbank exposures allowed to member states - osset items constituting c1aims on and other exposures to institutions, with a maturity of one year or less. but not constituting such institutions own funds (article (i)); a weighting of 20 % to asset items constituting c1aims on and other exposures to institutions with a maturity of more thon one but not more than three years and a weighting of 50 % to asset items constituting c1aims on institutions with a maturity of more than three years, provided that the latter are represented by debt instruments that were issued by a institution and that those debt instruments are, in the opinion of the competent authorities. effectively negotiable on a market made up of professional operators and are subject to daily quotation on that market, or the issue of which wos authorized by the competent authorities of the Member State of origin of the issuing institutions. In no case may any of these items constitute own funds (article 115-2). by way of derogation from Article 113(3J!i) and Article 115(2). a weighting of 20 % to osset items constituting c1aims on and other exposures to institutions, regardless of their maturity (article 116). France has authorized this provision (article 116). The removal of these exemptions and risk weightings results in 100% risk weighting for ail interbank exposures and Is prejudiclal to our members, and. through them, to the whole economy. Indeed specialized in granting credits to individual persons and small business enterprises (SME), specialized credit institutions are naturally structural borrowers on interbank markets. The Commission's proposai could impede them in finding the funding they need for their activity, or increase significantly the cost of their resources up to a levelliable to threaten their permanence. The proposai could also seriously affect the financing of individual persons and SMEs where specialized credit institutions take a very large part thanks to their specific technique of granting credit - offer of financing at the seller's. very good examination credit risk technique 3

5 (scoring), management of numerous small amount c1aims, and, in real estate credit. besides, a relevant knowledge of the markets and therefore a very good control of risks -. The effects upon the financing (Ioans, leasing) of individual persons and SMEs would be very important with very serious consequences to seetors of economy such cars, household appliances, furniture, new technologies, mass distribution, real estate activity, which generally generate jobs and for which their action on the demand boosts the growth. On account of these different points, especially. besides prudenhal concerns. economic impacts, we suggest to conserve the present exemptions requiring the agreement of the member states. o - Other removals of exemptions and risk weighting in large regime exposures: The document "CRD potential changes" proposes to remove: - About off-balance sheet items: -removal of the exemption of 50 % of the medium/low-risk off-balance-sheet items referred to in Annex Il. that especially includes undrawn credit facilities (agreements to lend, purchase securities. provide guarantees or acceptance facilities) with an original maturity of up to and including one year which may not be cancelled unconditionally at any time without notice or that do not effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness) (article (r). -removal of the exemption of the low-risk off-balance-sheet items referred to in Annex II. to the extent that an agreement has been concluded with the client or group of connected clients under which the exposure may be incurred only if it has been ascertained that it will not cause the limits applicable under Article 111 (1) to (3) to be exceeded.(article (t). Are especially concerned undrawn credit facilities (agreements to lend. purchase securities. provide guarantees or acceptance facilities) which may be cancelled unconditionally at any time without notice. or that do effeetively provide for automatic cancellation due to deterioration in a borrower's creditworthiness. Retail credit lines may be considered as unconditionally cancellable if the terms permit the credit institution to cancel them to the full extent allowable under consumerproteetion and related legislation. We don't understand at ail the reasons of these removals that aim to give a 100% risk weighting to events not yet occurred. and to consider them as balance sheet items. while maybe they never will happen. Besides. in interbank matter, an increase in the cost. in terms of own funds. of the commitments may result in a risk of seeing lenders to restrict the funds necessary to specialized credit institutions. structural borrowers, with the consequences for their Iiquidity. About other elements : -removal of the exemption of bills of trade and other similar bills, with a maturity of one year or less. bearing the signatures of other credit institutions (article (k) ; -possibility for the member states to assign a weighting of 20 % to asset items constituting c1aims on Member States' regional governments and local authorities where those c1aims would be assigned a 20 % risk weight under Articles 78 to 83. (article 115 1J. 4

6 We don't understand the reasons of the removal of this exemption and this risk weighting. Any particular difficulties related to the amount of exposure upon a same counterparty don't seem have occurred. Il - Party E Il Technical amendments to directive 2006/48/EC of the document of the Document «CRD potentlal changes li includes several modifications concerning minimum level of own funds reguirements. -Several amendments concerning annex VIII of directive 2006/48/EC aim to take into account, for the application of provisions of this annex, as exposure value of off-balance sheet items, 100% of their value rather than the exposure value indicated in article 78 (1). It is the case for points b), h). i) (pages 42, 43, 44, of document «CRD potential changes»). concerning , , of part 3 annex VIII. For the reasons mentioned above about the regime of certain off-balance sheet items large exposure, there is no reason to take into account off balance sheet items for 100%, when they normally have a smaller risk weighting. -We also don't agree with the amendments to and part 3 of annex VIII (points d) and 1), pages 42 and 44 of document «CRD potential changes), that provide, for the application of these provisions, the exposure value of the items listed in annex VII. part 3, points 9 to 11, be calculated using a conversion factor of 100% rather thon the conversion factors or percentages indicated in those points. 16/06/2008 5