📢 EACB Comments on the EBA Guidelines on proportionate retail diversification methods under Article 123(1) of the CRR3. The EACB welcomes the opportunity to comment on the EBA Guidelines on proportionate retail diversification methods under Article 123(1) of the CRR3. We agree on the importance to define proportionate retail diversification methods for the application of a preferential risk wight of 75% and implement the discretion embedded in the Basel III reforms to determine appropriate methodologies, beyond the 0.2% aggregate portfolio threshold. However, we invite the EBA to a more thorough analysis of the diversification test in light of several shortcomings, among which: 🔹 Diversification test: a two-step approach appears burdensome, not in line with the principle of proportionality and ineffective, considering the limited benefits in terms of financial stability and the large expected impact on regulatory capital. 🔹 Operational challenges: the proposed methodology would have unreasonable costs for those institutions which apply a consistent and comprehensive approach to segmentation of exposures, where segmentation is regarded as one system determining not only the respective category in regulatory reporting, but also holistic risk management throughout the whole lifecycle of the exposure. 🔹 Portfolio structure: smaller banks may often have a relatively higher number of connected clients on the total portfolio. This represents an additional disadvantage, as it results in lower granularity of exposures compared to larger banks. 🔹 Effects on real economy: it will reduce the ability of small banks to finance the real economy For example, a bank that only has a retail portfolio of EUR 100 million would be able to grant retail loans of up to EUR 200.000 granularly. This leads to strong distortions of competition to the disadvantage of small banks and, thus, contrasting the level playing field concept and the principle of proportionality. More details are available in our position paper ➡️ https://lnkd.in/euMNzJ24 #BankingRegulation #SMEs #CooperativeBanks #Proportionality #CRR3 #EBA
