Spanish banks criticize capital surcharges from Brussels and the ECB to reduce toxic assets

They may produce uncertainty and imply a high cost, the AEB warns.
The two extra capital surcharges being proposed by the European Commission (EC) and the European Central central Bank (ECB) for banks in the Eurozone protect themselves and drop their NPLs are worrying the Spanish banking system. So said the main association in the sector (AEB) in an allegation writ sent to European authorities that ended last week the period for receiving opinions and suggestions from affected parties.
At the end of 2017, the European executive power and the ECB launched a regulatory package that, among others, contemplated imposing two addition capital requirements for those new NPLs that may generate in the Eurozone banks. The project kept going and has been submitted to the banking sector for consultation. The Spanish banks have made clear that the existence of two parallel regulations will mean problems for the entities.
“Proposals on NPLs from the European Commission and the ECB regarding putting in motion minimum provisions with prudential criteria (backstops) are not coincidental either in nature (Pillar I vs. Pillar II), or their objective application scope (new operations vs. new NPLs), or treating of expositions, which default is likely, specially in the calendar and percentages in which these provisions have to be built on”, says the AEB in its writ, anticipating potential “uncertainty” and “high costs” for the Spanish banking entities.
The Spanish banking industry reclaims in their missive from European regulators that, before approving the definitive version of the new prudential requirements the interaction between both have to be clarified. For instance: The deadlines set by the ECB are stricter than the ones set by Brussels.

A useless calendar

The AEB also anticipated that one of those two calendars will be “basically useless”. “Even considering the legal nature of both proposals (European regulation is a binding standard, while the ECB’s guide include expectations from the supervisor), the truth is , as a matter of fact, the entities will have to meet the most demanding requirement and the ECB’s guide may be the regulatory framework prevailing”, Spanish banks anticipate.
Spanish banks, according to the group led by Mr. José María Roldán, will have to assume the larger costs to maintain two parallel accounting systems, due to the coexistence of two similar provision frameworks. “It should also be considered that which of the calculations or even both should be included in the accounting information, internal management documents, etc.”, cautions the AEB.
The banking organization continues its missive making a few suggestions for reforms from the European Commission. Thus, the entities are betting to wavering on applying deductions on the regulatory capital for those banks accumulating too many NPLs; in exchange, they propose to raise the volume of weighted assets linked to these distressed expositions. This option is an “alternative that would unbind the proposal of the EC from accounting standards”. Not only it wouldn’t question provision accumulated levels, but it would also permit associating more risks to the credit expositions not covered by guarantees”, explains the AEB.
Another recommendation and reclaim to the European authorities is to create a backstop consistent with the current regulatory framework, that does not trigger an arbitration scenario, that is, entities may end up dealing with two incompatible regulations applicable for the same thing. They also criticize Brussel’s intention of setting yearly minimum objectives that the banks have to achieve progressively to meet the new regulation. According to them, this is contrary to the objectives of the additional provision “by definition, a surcharge is an instrument that works as a barrier or support, so we think it’s not appropriate to regulate the way to reach the levels set by those surcharges”, the AEB states.

Source: Expansión. Translation by Miguel Vinuesa Magnet.


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