Industry bodies attack EBA’s slotting proposals

The European Banking Authority’s (EBA) proposed rules on slotting have come under fire from banking and real estate groups fearful of more onerous regulation.

The EBA wants to standardise the slotting regime across the EU and is proposing to specify what factors should be taken into account and how they should be combined to determine the appropriate risk weights of loans.

At present, banks use their own internal criteria to determine the risk weights of their loans and consequently how much capital they have to keep in reserve to satisfy the slotting. UK banks became subject to slotting in 2011.

The Commercial Real Estate Finance Council (CREFC) Europe said slotting was already prescriptive enough and there was no compelling evidence that the EBA’s “mechanistic approach should replace judgment”. It called for an “evidence based approach” from the regulator.

CREFC is in favour of harmonising capital rules to create a level playing field for lenders. “We would like to see some of the discrepancies between regulatory capital rules affecting different markets and different participants reduced, and it makes sense to set consistent ‘slotting’ criteria across the EU,” said Peter Cosmetatos, chief executive of CREFC Europe.

“There is however no evidence of a problematic lack of harmonisation in the way firms actually implement ‘slotting’, so we see no case for imposing a mechanistic approach to assigning risk weights.”

The British Bankers Association said the EBA proposals “would be a retrograde step for the identification of the risk of these exposures to UK regulated institutions which account for in excess of 60% of all EU exposure reported using [slotting] and would not [be] a proportionate response.”

The EBA closed consultation on its Regulatory Technical Standards on Specialised Lending Exposures this week after receiving responses from CREFC, BBA, the British Property Federation (BPF), the Loan Market Association and the French Banking Association among others.

The BPF said the introduction of significant competitive distortions as a result of the “very great differences in regulatory capital requirements between banks using slotting and those not”, was of concern.

“This has noticeably compromised the competitive position of UK firms relative to the UK branches of overseas banks subject to different methods of calculating regulatory capital,” said the BPF.

“In our view these distortions are more problematic and deserving of the EBA’s attention than any differences in the way different firms apply the slotting criteria to assign risk weights to specialised lending exposures.”

An EBA spokeswoman said the regulator would publish its response to the concerns raised alongside the final draft regulations before the end of the year.