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May 8, 2017
Bank of Japan
The Financial Services Agency and the Bank of Japan sent a comment letter on April 17, 2017 to the European Commission (Director General at DG FISMA), the Council of the European Union (Director in charge of ECOFIN) and the European Parliament (Chair of ECON, Rapporteurs on CRD and BRRD) regarding the comprehensive package of proposals to further strengthen the resilience of EU banks, which the Commission published last November.
For our comment letter, please find below.
This letter is to comment on the comprehensive package of proposals to further strengthen the resilience of EU banks, which the Commission published last November. A particular focus is on Article 21b of the Capital Requirements Directive ('CRD Article 21b'), which sets out requirements for certain non-EU groups to have intermediate EU parent undertakings in the Union.
The explanatory memorandum of the proposal states that the objective of CRD Article 21b is to "facilitate the implementation of the internationally agreed standards on internal loss-absorbing capacity." We share this objective, but it should be achieved in the most efficient way possible.
In developing a business plan in the EU, non-EU financial groups will face additional uncertainty and costs arising from the proposal. This, coupled with the uncertainty and costs associated with Brexit, may work to decrease the attractiveness of the EU as a financial center. As long as uncertainty remains, financial institutions have to prepare for the highest-cost scenario. Given the uncertainties, even an institution with a small footprint in the EU may have to consider the possibility of being required to change their organizational structure and the potential change of their competent authorities.
We would like to see the contents of the rules and the process to finalize them designed to address these concerns. Specifically, we would like to draw your attention to the following points:
"A sub-group of a resolution entity is considered 'material' for purposes of applying the Internal TLAC requirement if the subsidiary alone or the subsidiaries forming the sub-group on a sub-consolidated basis at the level of the sub-group meet at least one of the following criteria:
Currently, 5% of the total assets of the smallest Japanese G-SIB amount to EUR 80 billion. Even if Japanese G-SIBs were to establish intermediate parent undertakings, those undertakings will not meet any of the criteria above. CRD Article 21b is likely to require setting up an intermediate EU parent undertaking even if the thresholds in the FSB TLAC term sheet are not reached.
In addition to the intermediate parent undertakings requirements, the proposals to further strengthen the resilience of EU banks include proposals on the implementation of Basel III. However, the proposals contain some elements that are not fully consistent with Basel III. We expect that the proposals will be finalized in conformity with the internationally agreed framework.
We understand the proposals will be finalized through the coordination process among the European Commission, European Parliament, and European Council. We look forward to continued dialogue on this matter.
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