mitigation techniques applied in the solvency regime were designed with the assumption of a well-diversified credit risk. In the case of large exposures dealing with single name concentration risk, credit risk is not well-diversified. The effects of those techniques should therefore be subject to prudential safeguards. In this context, it is necessary to pro vide for an effective recovery of credit protection for the purposes of large exposures.
Since a loss arising from an exposure to a credit institution or an investment firm can be as severe as a loss from any other exposure, such exposures should be treated and reported in the same manner as any other exposures. How ever, an alternative quantitative limit has been introduced to alleviate the disproportionate impact of such an approach on smaller institutions. In addition, very short- term exposures related to money transmission including the execution of payment services, clearing, settlement and custody services to clients are exempt to facilitate the smooth functioning of financial markets and of the related infrastructure. Those services cover, for example, the execution of cash clearing and settlement and similar activities to facilitate settlement. The related exposures include exposures which might not be foreseeable and are therefore not under the full control of a credit institution, inter alia, balances on inter-bank accounts resulting from client payments, including credited or debited fees and interest, and other payments for client services, as well as collateral given or received.
The provisions related to external credit assessment insti tutions (ECAIs) under Directive 2006/48/EC should be consistent with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (2). In particular, the Com mittee of European Banking Supervisors should review its guidelines on the recognition of ECAIs to avoid duplica tion of work and reduce the burden of the recognition pro cess where an ECAI is registered as a credit rating agency (CRA) at Community level.
It is important that the misalignment between the interest of firms that ‘re-package’ loans into tradable securities and other financial instruments (originators or sponsors) and firms that invest in these securities or instruments (inves tors) be removed. It is also important that the interests of the originator or sponsor and the interests of investors be aligned. To achieve this, the originator or sponsor should retain a significant interest in the underlying assets. It is therefore important for the originators or the sponsors to retain exposure to the risk of the loans in question. More generally, securitisation transactions should not be struc tured in such a way as to avoid the application of the reten tion requirement, in particular through any fee or premium structure or both. Such retention should be applicable in
Official Journal of
By 31 December 2009, the Commission should report to the European Parliament and the Council and propose appropriate legislation needed to tackle the shortcomings identified regarding the provisions related to further super visory integration, taking into account that a stronger role for a European Union level supervisory system should be achieved by 31 December 2011.
Excessive concentration of exposures to a single client or group of connected clients may result in an unacceptable risk of loss. Such a situation could be considered prejudi cial to the solvency of a credit institution. The monitoring and control of the large exposures of a credit institution should therefore be an integral part of its supervision.
The current large exposures regime dates back to 1992. Therefore, the existing requirements on large exposures set out in Directive 2006/48/EC and in Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (1) should be reviewed.
Since credit institutions in the internal market are engaged in direct competition, the essential rules for the monitor ing and control of the large exposures of credit institutions should be further harmonised. In order to reduce the administrative burden on credit institutions, the number of options for Members States as far as large exposures are concerned should be reduced.
While it is desirable to base the calculation of the exposure value on that provided for the purposes of minimum own funds requirements, it is appropriate to adopt rules for the monitoring of large exposures without applying risk weightings or degrees of risk. Moreover, the credit risk
OJ L 177, 30.6.2006, p. 201.
the European Union
In order to achieve the necessary level of supervisory con vergence and cooperation at the European Union level, and to underpin the stability of the financial system, further wide-ranging reforms of the regulatory and supervisory model of the European Union’s financial sector are highly needed and should be put forward swiftly by the Commis sion, with due consideration of the conclusions presented by the de Larosière Group on 25 February 2009.
In determining the existence of a group of connected cli ents and thus exposures constituting a single risk, it is also important to take into account risks arising from a com mon source of significant funding provided by the credit institution or investment firm itself, its financial group or its connected parties.