Ahead of the Capital Requirements Directive (CRD 4) final text due to be delivered by the European Commission on Wednesday Giles Williams, head of KPMG’s Regulatory Centre of Excellence in Europe, commented:
“It is unlikely that there will be any surprises in the substance of the Directive, given it is based on the Basel 3 package. The industry should welcome moving towards creating a level playing field for internationally active banks and suggested measures to strike the right balance between stability and ensuring the banking system can continue to support the real economy in member states.
“However the major sticking point will most likely be around maximum harmonisation and whether the proposed system will give national regulators sufficient flexibility and discretion to set capital requirements to reflect risks taken by individual banks, and financial stability concerns as and when they arise.
“The use of maximum harmonisation regulation means that national authorities will not have the scope to set higher capital ratios across the board. The outstanding questions are whether the current discretion for regulators to demand that individual firms hold additional “Pillar 2” capital following supervisory review and evaluation will be effective under the revised EBA guidance; and how proposed macro-prudential tools will work in practice at a national level.
“I would expect another key consideration for both national regulators and the industry to be around implementation. Specifically how this Directive will be integrated within the context of the wide range of other regulatory reform initiatives including the capital surcharges for global and national SIFIs, the role of bail in capitals and the Basel Committee’s review of the trading book, to name a few.
“Furthermore, additional reporting requirements will be onerous for firms who will need to be able to integrate these with other changes in regulatory reporting and data management.”
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Notes to editor
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Email: monica.fiumara@kpmg.co.uk
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
