EACB comments on EBA draft Draft Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP)

The EACB welcomes the EBA’s efforts to review and align the Guidelines on the supervisory review and evaluation process (SREP) and supervisory stress testing to the relevant level one legislation (CRD V).
We appreciate the fact that the draft revised GLs contribute to greater clarity and would allow a better understanding of supervisory decisions. However, the draft guideline contains elements that go beyond the CRD itself. We believe instead that the flexibility embedded in the level 1 legislation should be fully maintained in the GLs and not be unduly restricted, e.g. in the case of the composition of P2R and P2G. We also generally believe that adjustments are necessary to respect the nature of guidance proper of P2G.
We noted, among other aspects, that now it is explicitly foreseen that there can be SREP-surcharges with regard to the "business model". In this context, and more generally in the SREP framework, questionable elements are being framed within the supervisory process: while Level 1 legislation stipulates clearly on the capital requirements for banks, through the SREP supervision seems to devise a way apart to define capital requirements for banks. The SREP capital requirements are becoming less and less understandable. The effect is that banks' Pillar 2 responsibility is no longer given, and that the supervisory authority uses the Pillar 1+ approach to allocate all economic Pillar 2 risks and all other risks to Pillar 1 hard core T1 capital. Thereby economic cover funds are ignored. In this context it has to be considered that banks have no legal remedies against decisions in the SREP procedure.
With regard to the new requirements the leverage ratio-P2R/-P2G, we have an overarching request to enable supervisory authorities to handle them in a pragmatic and proportionate manner. In our view, the business models and business activities of the vast majority of institutions do not present excessive leverage risks. As a result, the establishment of a P2R-LR and/or P2G-LR should only be necessary in individual cases.
In addition, the different perspective of macroprudential and/or systemic buffers should not overlap with the microprudential SREP capital add-ons as these dimensions were clearly separated by co-legislators in the CRD text.
Besides, the planned date of application of the revised SREP guidelines is not clear. Since finalization and provision of translations can probably not take place until early 2022, the guidelines should not become effective until January 1, 2023: i.e. first application in the 2023 supervisory cycle.