On 1 March 2016 the European Banking Authority (EBA) published its annual assessment report of EU colleges of supervisors. The colleges represent a platform within which joint decisions on capital and liquidity and recovery plans are organised for EU cross border banking groups. The colleges and joint decision have existed already since Basel II implementation in EU in 2007 but their powers have even enhanced since the implementation of Basel III via EU legal framework CRD IV/CRR in 2014 and enhanced even further with BRRD implementation since 2015. (You may find information about BRRD in another article on our ARM web pages – see here).
Generally, significant efforts and improvements were observed for various aspects of colleges’ work. The EBA appreciates e.g. the enhanced level of interaction in 2015 and improving the quality of the group risk assessment reports. However, improvements are still expected in the timely circulation of meeting documents. The EBA also points out that there are remaining issues in the joint decisions like the incomplete information on the breakdown of the SREP (Supervisory review and evaluation process) capital requirements by risk type and challenges in formulation of the additional capital requirements. For 65% of the closely monitored colleges, capital requirements are not expressed in terms of total SREP capital requirement and there is a mix of Pillar 1 and Pillar 2 requirements that are combined with capital buffers or capital planning expectations.
As regards the liquidity joint decisions, the EBA concludes that the reasoning is limited and fails to make appropriate links to the group liquidity risk assessment report and individual liquidity risk assessment reports. As regards the implementation of the recovery and resolution framework under the BRRD, supervisory colleges are required to assess group recovery plans for cross-border banking groups and reach joint decisions on the assessment of these plans.
The setting up of the Single Supervisory Mechanism within eurozone (SSM) at the end of 2014 and the new regulatory requirements on supervisory colleges have influenced the re-establishment of colleges and have caused changes in membership and observership statuses among supervisory authorities.
In order to monitor the colleges effectively the EBA divides them into three groups based on several criteria (e.g. the international presence and total assets, current restructuring or resolution):
The EBA maintains the most intensive level of communication and cooperation with the first group of colleges or their consolidating supervisors, respectively. The level of intensity decreases for the other two groups. The EBA found out that the vast majority of colleges developed new written coordination and cooperation arrangements, which are well structured.
Until 2015 the EBA’s monitoring of supervisory colleges was focused on cross-border banking groups. In 2016 the EBA is going to expand the scope of colleges to include colleges established for investment firms with cross-border presence. The report also sets key topics supervisors should focus on in 2016 which include among other things ongoing balance sheet cleaning and NPLs reduction for legacy portfolios and the sustainability of banks' business models (see page 61 – 63 of the EBA report in detail).