The report is part of the EBA’s simplification and efficiency programme and follows a report issued last October on the efficiency of the regulatory and supervisory framework.
The report reflects on how to streamline the EU capital framework for institutions without reducing resilience nor weakening supervisory action. It discusses options to reduce unnecessary complexity, improve consistency and predictability, and support effective supervisory and resolution tools. To do this it follows four guiding principles:
- The preservation of resilience and maintenance of capital neutrality.
- Adherence to international standards, in particular the Basel Committee and Financial Stability Board standards.
- Proportionality considering that both large and small institutions are subject to the framework.
- Enhancing the efficiency and depth of the single market to the benefit of the EU economy and financial stability.
Regarding the micro-prudential part of the framework, the report recommends that only micro risks are covered by the Pillar 1 requirement (P1R), that the role of Pillar 2 requirements (P2R) is kept as intended in the Capital Requirements Directive (CRD) and the Supervisory Review and Evaluation Process (SREP) guidelines to cover risks which are not or not sufficiently covered by P1R.
Similarly, the report reaffirms the role of a Pillar 2 guidance (P2G) as intended in the CRD and SREP guidelines. The report does not recommend to merge P2R, Capital Conservation Buffer (CCoB) or P2G. The report recommends streamlining the leverage ratio stack by converting its Pillar 2 requirement into a buffer and removing its P2G. The report does not propose a change in the composition of capital.
For the macroprudential part of the framework, the report considers that efficiency could be improved by creating a single releasable macroprudential buffer that consolidates the current countercyclical capital buffer (CCyB) and systemic risk buffer (SyRB). This should be supported by a high-level common methodology which would support convergence while preserving sufficient flexibility to recognise differences in local markets and macro-financial cycles, and thus to maintain financial stability. In addition, the report recommends updating the common methodology for other systemically important institution (O-SII) scoring and considering further guidance on O-SII buffer calibration.
In the resolution part of the framework, the report recognises that minimum requirement for own funds and eligible liabilities (MREL) complexity partly mirrors the complexity of the going-concern framework on which it is built, while it identifies a few targeted changes concerning metrics and adjustments. Other approaches – such as linking MREL to a single fully subordinated metric, introducing a ‘Resolution Pillar 1’ and ‘Resolution Pillar 2’, or amalgamating requirements into a single stack — are presented with elements for possible further future consideration.