The European Central Bank (ECB) updated the policies outlining how it exercises options and discretions when supervising banks after receiving 210 comments from 13 banking associations and two banks. The central bank aims to harmonize policies to support a level playing field across the banking union.
The ECB has made several clarifications and adjustments to its policies relating to how the central bank grants permissions to banks concerning capital requirements calculations for operational and market risks, and to whether minority interests in subsidiaries can be included in the capital of a banking group.
The updated policies also clarify how the Danish Compromise should be applied in the banking union. This is a specific rule in EU regulation that allows banks, in certain circumstances, to risk-weight their investments in insurance subsidiaries instead of deducting them from their capital.
Banks risk-weighting their investments in an insurance subsidiary should risk-weight all the own funds instruments they hold in that subsidiary and not only core equity instruments. The ECB will grant a one-year transition period to all affected banks.
European banking rules allow competent authorities to choose how to apply certain provisions. Clarifying and making transparent the way ECB exercises options and discretions substantially simplifies the framework, makes supervisory actions more predictable and ensures that banks are treated consistently throughout the banking union.