Liquidity ratios e Volcker Rule: impatti operativi e

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Transcript Liquidity ratios e Volcker Rule: impatti operativi e

EBA proportionality workshop
Proportionality
and Liquidity Risk
Andrea Resti
Department of Finance
Bocconi University
[email protected]
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The proportionality principle:
back to basics
• The lawfulness of a measure depends on whether it
is appropriate and necessary to achieve the
objectives legitimately pursued. When there is a
choice between several appropriate measures the
least onerous must be adopted, and any
disadvantage caused must not be disproportionate
to the aims pursued.
• A 3-stage test:
1. is the measure suitable to achieve a legitimate aim?
2. Is it necessary to achieve that aim or are less restrictive
means?
3. Does it have an excessive effect on European citizens or
companies?
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The new Liquidity Rules:
a legitimate aim?
• Aim: to avoid the costs
caused to taxpayers,
employees, consumers
and borrowers by bank
failures triggered by an
inadequate liquidity
profile (LCR) and/or by
an excessive maturity
transformation (NSFR)…
• …with a special focus on
costs caused indirectly,
through contagion
Costs to shareholders
Direct costs
to other
stakeholders
Costs
of contagion
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The new Liquidity Rules: necessary
and able to achieve this aim?
• The financial crisis has shown the weaknesses of
a system based on
– Capital requirements
– Discretionary review by national authorities
– Market discipline (?)
• Hard limits to the banks’ ability to take on
liquidity risks may therefore add significantly to
the effectiveness of the regulatory framework
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Disadvantages (dis)proportionate
to the aims pursued?
• Two main classes of disadvantages
– Lower profitability and higher prices
• ex ante or ex post? Will shareholders lose the
ability to “outsource” costs to the taxpayer?
• It is hard to ensure that this dilution in
profitability / increase in prices is
proportionate to disadvantages, but it is hard
to challenge this in Courts
– Compliance costs
• Mainly fixed in nature…
– although the rules can accommodate for
some degree of flexibility (e.g., Pillar 1 in
Basel 2)
• …while the negative externalities increase
with size!
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On a micro basis, compliance costs
may prove disproportionate to benefits
Social benefits
Social costs
Some compliance costs may be similar
Large banks generate larger systemic externalities
Large bank
Small bank
Similar issues
may arise in
large
international
groups having
small local
affiliations
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Keeping reporting costs aligned with
benefits: what can be done?
• Art. 415.3: “The reporting formats and
frequencies shall be proportionate to the nature,
scale and complexity of the different activities of
the institutions”, but
– Art. 415.1: Institutions shall report the LCR items not
less than monthly and NSFR items not less than
quarterly
– Art. 415.3: Eba shall specify “uniform formats and IT
solutions”
• What scope for proportionality is left to EBA?
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Keeping reporting costs aligned with
benefits: scope for proportionality
• Frequencies? No.
• Remittance dates? Yes.
– This should be extensively used, also to ensure that tight
remittance dates do not prove detrimental for the quality of the
data provided by less sophisticated institutions
– The gap between different classes of institutions could be wide
upon first-time application, then close as data collection processes
are fine-tuned
• Formats and IT solutions? Yes.
– The level of detail may vary across different classes of institutions,
provided that data can be reconciled at the less granular level
– 2-3 different IT solutions should not be ruled out, as far as they
allow for data to be easily integrated
• Duplicated information flows
– Art. 412.5: Member States must remove national provisions when
LCR is fully introduced in the Union (art. 460), but
• National NSFR until European NSFR is introduced (413.3)
• National monitoring tools until full introduction of EU liquidity rules (415.3)
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Keeping reporting costs aligned with
benefits: what else should be done
• Rules on liquidity subgroups strike a sensible balance
between the host countries’ wish to control liquidity
externalities and the need for strong, streamlined,
integrated liquidity rules
– E.g., by setting minimum amounts of liquid assets to be held by
local institutions (Art. 8)
• Still, they leave considerable room for national
supervisors wishing to drag their feet
– Political consensus is needed to strengthen the EBA’s powers of
non-binding mediation (Art. 21)
• Otherwise, cost/benefit proportionality will be affected
twice:
– Irrational cost duplication
– Costs following from constraints to the free flow of funds across
cross-border groups
EBA proportionality workshop
Proportionality
and Liquidity Risk
Andrea Resti
Department of Finance
Bocconi University
[email protected]