 So, good morning and welcome to Frankfurt. Thanks for coming. This is the hearing on the draft addendum to the ECB guide on options and discretions in union law. And we will do this the same way we did the previous hearings. You will get a short introduction and then we open the floor to questions. Before we start, let me introduce the podium to you. Right in the middle, Ignacio Angeloni, a member of the ECB supervisory board. Next to me, Roberto Mochena, Deputy Director General in Legal Services. And on the other side, Thomas Jorgensen, Head of Division Supervisory Policies. So without further ado, we start this hearing. Ignacio, the floor is yours. Thank you very much, Rolf. Good morning, everybody. Thank you for coming. Maybe I should say thank you for coming again because this is not the first time that some of you come here to the ECB to discuss this topic, options and discretions in European banking legislation. Now this is, let me remind you something that I already mentioned when we had the first hearing that this is a very large project that the ECB has undertaken that is very much in the core of the SSM mission to conduct a area-wide, SSM-wide consistent supervision that requires a regulatory level playing field. The ECB is not a regulator, is a supervisor, but the European banking legislation contains a large number of provisions that are optional or discretionary in nature. It means that they can be applied in different ways. And the legislation entrusts the competent authorities, quote-unquote, which is now the ECB for the SSM significant banks, and trust the ECB, therefore, to apply these provisions in a certain way. And so it's important that after taking over, the ECB, a supervisor, specifies, clarifies how these provisions are applied. And so we have worked for several months intensely with the national authorities that applied these provisions before the SSM in order to come to an overall consistent package on how to harmonize. So to speak, those provisions. Some of these provisions are general in nature and some others are case by case. General, it means that they're a little more regulatory in character in the sense that the ECB establishes in a general way how the provisions are applied. And so that is a new sort of addendum to the rules that it has to be in the way the banks have to apply certain regulation. They are general, they are applied erga omnes. Others are case by case. It means that they are activated only when the banks apply, for example, for a waiver. And then after an application for a waiver, the ECB responds. And the legal nature and the way these two different categories are applied is different in some respects. One difference, for example, is that for the general provisions, there is an obligation for the ECB to do a public consultation. Whereas for the case by case ones, it's an optionality for the ECB to do it. Nonetheless, we decided to do it for the sake of transparency, also for the case by case ones for the sake of transparency, and also to get input from the industry. Now, I'm repeating this because the additional provisions that we are going to look at today are all case by case. So in principle, we would not have had, as ECB, the obligation to consult again, but consistently with the first part of the package, which contained both general and case by case provisions, we decided to consult again. Because it's important, we are going to look today at a few of these options and discretion, not very many, about eight, if I remember correctly, the number. But quite significant for a number of banks in their policy content. And so I think it's important that we consider today's provisions as an addendum, this is an addendum to the previous guide to our JSTs. These are all case by case, as I said. So the provisions that we discussed today are in the nature of a guidance that we as ECB give to the joint supervisory teams, the JSTs, on how to apply these provisions on a case by case when applications for waivers come to the ECB. So, we will discuss the provisions contained in this addendum today. This addendum, as the Latin word says, will be added on top of the document that we have already discussed and published recently. We plan, I think, to have a consolidated text at some stage in order to make the whole thing sort of overall consistent, otherwise it's difficult to put them together. But it's important for us to understand that today we discuss only the additional ones, the added ones, not we don't want to rediscuss the previous one, otherwise we will never end up. This public consultation has a calendar. The calendar foresees that we had a starting date, which, if I'm not mistaken, was the, what was it, the 17th of May. It will be concluded on the 21st of June. Today is the 3rd of June, so we have another couple of weeks or so to go for the consultation after this public hearing. So this means that in addition to the clarifications that we may provide today, there is also a possibility to add additional questions in the coming couple of weeks before the thing is concluded. And as usual, after the end of the consultation period, we will read very carefully all your written questions. We'll consider what has been discussed today. We'll put together in a package with explanations and this will be provided as part of the documentation in the end following the consultation. And it is very possible, actually this is what normally happens, that some adjustments are made to the proposal following the comments and the suggestions that we receive from you. I would like to stress that we have foreseen for this second consultation a slightly longer period of time because we realize that the first time we had consulted only for four weeks, which some of you judged not sufficient, that's fine. So this time, I think we have five and a half weeks or so, five and a half weeks for a much smaller number of provisions. So that should give all of you a possibility to intervene relatively easily. Let me go through before we open the discussion just quickly go through the substance, the content of some of these provisions. I will group them according to the content and their inner logic. So first of all, not in order of importance, but just to organize. There is first one provision which is contained in article 24.2 of the CRR, the Capital Requirements Regulation and that relates to the possibility of the supervisory authority of asking banks to report according to international accounting standards for prudential purposes. Okay, so this is not a change in the accounting system. We stress test, this is a possibility foreseen in the legislation for the supervisor to say in order to establish a prudential level playing field for those particular magnitudes or variables which are important in the balance sheet, banks have to report according to AFRS. Now, there's pros and cons here clearly. On the one hand is the level playing field on the other additional complication for some banks. So we've been discussing I have to say rather at length in the supervisory board those pros and those cons, coming in the end to the conclusion that we will not exercise this option in a general sense. So we will not require Erga Omnes, so to speak, to report in this way. Nonetheless, considering the important advantages from the point of view of level playing field, we would like to at least allow those banks that wish to do so, that wish to report in a consistent way at the group level. To report in a consistent way following AFRS, we would like to give them the possibility to do so on request. And so we are working on that, that would be a little bit sort of putting together the general nature and the case by case nature of the provision, of course subject to legal soundness of the whole thing. And we would like to work, I think it's mentioned in the written material that you have seen that we will allow for this additional element of flexibility. Then there is another important provision which is this time in the capital requirements directive, the CRD-4, and this is 88.1, that relates to the possibility of combining the function of chairman and the CEO of the bank in the same person, in the same bank and the same person, same person fulfilling the both functions. In general, the spirit of the CRR is to allow for this possibility very sparingly because it is well recognized from a point of view of proper governance that the CEO and the chairperson of the board have different functions. And the distinction between these roles is part and parcel of good governance of banks. On the one hand, the executive power, so to speak, on the other, the controls, and so there has to be a balance. So this is the general policy orientation of the ECB to allow for this only in exceptional circumstances. What does exceptional mean? There can be transitional situation, for example, in case of restructuring. There can be cases in which the bank is so small and so tiny that it doesn't make logical sense to have this distinction. There can be exceptional cases in which we are prepared to allow for that. And in addition, we have to consider that this comes from the CRD, so from the directive, which means that the actual legal implementation is up to the member states who transpose the directive into national legislation. And it's clear in the SSM regulation that when this happens, we have to respect, actually apply the national transposition law. So if there are countries where the CRD has been transposed in a certain ways, for example, to allow this more easily, we will have to apply for that. So you will see a policy in the document, but that has to, as I said, that has to be applied in a way that is consistent with national transposition laws. Then there are two provisions that go together by sort of the common elements that relate to the possibility of waiving capital and leverage requirements for sub-entities within groups at the domestic level. So here you have groups, domestic groups, not cross-border in this case, that have cross-entity exposure, both upwards and downwards and also horizontal, okay, exposures within. And so there is a possibility in the legislation to waive for capital requirements at the individual level and to waive for leverage requirements. And there are two different norms. One is 113.6, the other one is 429.7 Sierra. Now, the general notion that we want to safeguard, this is a rather general point that applies here, but also in other cases, is that leverage requirements and capital requirements are different from a prudential perspective. Capital requirements apply to different types of assets which are weighted according to risk. And so there are criteria methodologies to weight according to risk. Leverage requirements are supposed to guard against excessive expansion of the balance sheet, regardless of the risk characteristics of the individual assets on the asset side. And they have in the Basel III framework is very clear that they have a distinct and complementary role. So it should not be automatic that when a waiver to capital requirements is granted, then it follows immediately automatically that a leverage requirement is also waived. And this is the case, this is a particular case for the infra group, but it's a more general concept, but here it applies because in 113.6, you have the conditions, the criteria in the CRR for waiving the capital requirement. And then in 429.7, it says that if those criteria are fulfilled, then we may as competent authority also waive, we don't have to, but we may also waive the leverage requirements. And that's why in the material here, you will find to some extent different and specific specifications that the JST will have to look at in order to authorize the two type of waivers, the capital waivers and the leverage waivers. And I think this is very important to keep in mind that in the new regulatory supervisory framework coming from the crisis, given the experience that we've made in that period, we want to have those elements of prudential safeguard acting together. And we don't want to lose any of the two. Let me come to the last group, so to speak, of provisions, which is rather technical and complex and relates to liquidity requirements, liquidity requirements. So you know that the legislation contains new requirements for liquidity that entered into force last October, if I'm not mistaken. It's called the liquidity cover ratio. The way the liquidity cover ratio works is that banks have to calculate expected inflows and outflows of liquidity over a certain period of time. I think it's 30 calendar days. And they have to provide reliable estimates of those. And there are provisions in the legislation on how to calculate those inflows and how to calculate those outflows. And then the net of the two, they will have to cover with a certain liquidity requirement, have to cover those net outflows. The two provisions that we're talking about relate one to the outflows and one to the inflows. In particular, for the outflows, and I'm here referring to article 30.2 of the liquidity cover ratio delegated act of the commission, 30.0.2. For the outflows, it is foreseen that they have to consider the possibility of a material deterioration of the credit quality of the bank. So the possibility of a rating downgrade. And if that is material, if that is judged material, to be material by the supervisors, they have to put it in. They have to calculate it among the outflows. So what we've done here is to include specification and in particular a materiality threshold of 1%. That's to some extent arbitrary. It has been calibrated based on actual data and we will see how it is applied. But you will see in the documentation there is a materiality threshold so that if the expected outflows go beyond a certain level, they will have to be put in. They will have to be considered. The other one relates to the inflows. And here the story is that there is a regulatory cap on the inflows for prudential reasons. So whatever is the estimated inflows that they have, they cannot include them all, but there is a cap and the cap is 75% but it's a possibility for the supervisory authority to waive this cap according to conditions. And so again we have specification, prudential specifications that clarify when the JSTs are guided by the supervisor to actually waive, to suggest a waiver of these cap on inflows and when not. When yes or when not depending on certain characteristics. The last thing I want to say is that when it comes to these waivers on liquidity, there are a number of provisions that foresee the possibility of waiver than some of them have certain overlap. So it's a bit complex, the legislation here I must say. And in particular, there is another provision here, article 34 of Delegated Act, that discusses the possibility of liquidity waivers infra-group. And so we wanted to make sure, to cut the story short, we wanted to make sure that those different provisions are not arbitraged away. And so banks do not take the possibility of applying one provision in order to bypass the specifications and the criteria for the other provisions. So that's why you will see at the bottom of this specifications for article 33.2, you will see that there are some additional conditions to be fulfilled in order to make sure that all these different provisions that apply basically to the same thing are applied consistently. Sorry, a little bit of complication at the end, but this is in the things. I mean, these complications are real because the legislation is very complex indeed. And we try to apply it in a consistent way. I think I'm finished. I don't know if something else says to be added at the beginning or we can start to discuss or maybe clarify other things. Good. So we open the floor to questions. So whenever you have a question, raise your hand. We have a microphone here and please let us know. The reason of labor is that I will answer the easy questions and Roberto and Thomas will answer the difficult one. For the European Association of Corporative Banks who have met quite some questions, I start with some. The first one relates to the authorization and waivers. Now, when I think, for example, of 136 for the waiver also on the cap on the inflows, there have already been granted waivers years ago and financial authorities in other cases recently. Will they be in any way affected or what do you expect for banks that already have the 0% risk weight? To what extent will they have to follow those requirements in the future? Yes. The other question regarding the waiver for the leverage ratio to have a habit on a group leverage ratio. To our information, the ECB has not granted any, not decided on any applications for such a waiver yet. Will with the adoption of these criteria, now will you then take decisions in this respect? Will you take the decision because there have been some requests for such a waiver to our knowledge? Yes. Well, on the first question, it is clear that the waivers that have been granted, authorized by the national competent authorities mainly previously remain valid. So the enactment of this new policy when it comes into force, and it's already been used to some extent. I will be more precise later on this, but this does not eliminate, does not invalidate the waivers in the past. What's going to happen is that the JSTs, once this is in operation, the JSTs will go and look at specific cases and will consider the situation, I would think the rare situations in which the new policy indeed conflicts with some waivers legitimately granted by national authorities in the past. In those rare cases, there could be no cases, but we will see those rare cases that will be a discussion by the JST, with the banks and with us on how to adjust the situation. But while this process takes place, it's important to understand that the previous decision remains valid, okay? So no worry that this creates a vacuum, sort of a regulatory vacuum for a certain period of time. This is not going to happen. Now, in terms of the leverage ratio, if I correctly understood your question, is yes, you have to consider the leverage ratio is not binding yet. So for the moment, there is a disclosure. There is a disclosure. This is a very gradual implementation up to 2018, if I remember correctly. To phase in the leverage ratio. So this is quite soft, the way it's done. But yes, yes, the JSTs will use these provisions in order to make decisions, yes. Good morning, this is Maria Peco from the Spanish Banking Association. First of all, thank you very much for giving us the opportunity of participating. We would like to make a question or a comment regarding chapter nine. We understand the wording of the article does not give enough clarity regarding its scope. Which article, sorry, I didn't hear. Which article are you referring to? Chapter nine, article, yeah. Article 88. Yeah, that's it. Okay. So we would please like to know to what situations thus the authorization regime apply. Thank you. This is a legal thing. So maybe Roberto wants to add. Basically, this comes as I mentioned from the CRD, the directive, so there are transposition laws. And I'm aware that Spain has transposed. I think that Roberto actually knows something about it. And so that maybe you can compliment on this. Well, as Ignatio said, we have to apply. Given that this comes from CRD4, we have to apply national legislation implementing article 88. So we have to look in detail how it has been implemented in national legislation and could be basically the case if that's a national legislation allows for the possibility the chairman being granted with some executive powers at the same time that there is a CEO in the banking at hand. So if this is the case, if the national law allows for this possibility of having this situation with the chairman, with the executive powers and also together with the CEO, with all the executive powers, if this combination is possible under national law, of course, we have to apply national law because we are bound by national law in that regard. So your question is whether it is needed and an authorization is needed in this situation. I think if there is, if this situation is considered compatible under national law, there is no need for authorization because the authorization is for having one person the two functions, the chairman and the CEO function. This is the meaning of article 88. So whether this is the situation under the Spanish law, this is for interpretation of this concrete provision, but if it is provided as I mentioned that the chairman could be granted with the executive powers different from the powers granted to the CEO, this is national law and we have to apply it. Anybody else with a question? Dirk Basman from GAR, we are on an audit firm located in Frankfurt. I've got a question regarding article 24.2. For example, if you've got a banking group with one EU parent institution on top and parent institutions in several member states, what is meant by the expression that for potential purposes the same accounting framework will apply to all reporting entities within a group? Does it mean a group on a EU-wide level or is it a domestic group? Right, so as I mentioned, this refers to the case in which we would like to allow for a voluntary, so there's no compulsion here. So here we have situations that have already materialized of banks that come to us and say, look, we have vast majority of the group operating in the SSM area, already reporting with IFRS. We have one situation in one country. Which, due to national, we report differently and that's a complication for us. This is typically what they say. Talk about large multi-country banks. It's a complication for us. Can we make it consistent at the group level? And so that is the situation in which we would like to, we would like to allow for that type of flexibility, but we don't want to allow it in a way that would give to the bank the possibility of picking and choosing country by country where it's more convenient, you see? So that's why I think we added this sentence that has to be in a consistent direction if it is in order to simplify and to harmonize the reporting of that banking group, that's fine. But in other situation, that will not be allowed. It's a bit, maybe I don't know if Roberto wants to clarify this. Legal is a bit complicated because we, this is, the provision doesn't have the typical form of a case by case. So we are not talking about a waiver in this case formally. It's not a waiver. So it is, they manifest to us the desire to do that and then in a way, we have to impose them to do it on request. So it's a little bit a legal contortion. I don't know if they want to clarify it. You are fully right. Here we are talking about the power of the ECB, a supervisor. So, but we have decided not to exercise this power on a general basis, but to be open to exercise it on a case by case basis. And from the time being, we are open to receive requests from banks to asking us for exercising this power. But of course, this does not mean that in the future, if the situation comes and we feel that it has to be applied on an individual case that has not been, even we don't have received an application from the bank. Of course, we are free to apply in that way because in the end, as I mentioned, the nature of this article is a power of the ECB, it's not a waiver, exactly. So we are not dependent on the request from banks but from the time being, from the policy side, you have decided just to exercise upon request, yeah. It came a little bit as a surprise to us because we were discussing this and the banking community was aware and some banks were concerned because they said if you're going to be forced to report the FRS, this is a complication for us, you know some cases, I'm sure. So this was the cons, among the cons and the pros, and so we decided not to exercise in a general sense but at the same time, request actually started to come a little bit unexpected by several banks to go in the other way and say please exercise because it's much better for us. So we're trying to combine the two things. I think there was a question here in the middle again. One more question please about again the waiver for the liquidity caps that is institution-specific. I could imagine that becomes much more relevant not in the case for the entities that are supervised by the ECB directly but more by the less significant institutions. To what extent do you expect national authorities, competent authorities to apply those standards as well? Thomas. Well, there is, I think there's some language in the communication also that we are looking at the LSI exercise of this. This is only for the SIS. So there will be an LSI process also, which will come with, but even before that, I think it would be relevant to assume that some of this would feed into the practice of the national competent authorities until the LSI process has been finished. So we would expect over the horizon that this will be applicable for LSI also in some kind of form taking account to probability and other issues. And there is also, in addition to this, there is also an IPS consultation, either ongoing or about to start. I don't remember the timing exactly, but the IPSs, which are the institutional protection schemes, sort of groups but different. It's close already, but the final documents are not yet published. Okay. As I said, questions that you do not have ready today can still be formulated in the next couple of weeks easily in writing or rather informally, we can receive your questions and we will be available to answer. Have we answered all the questions that you had on your minds? If so, again, thank you very much for coming. Thanks a lot. And have a safe trip home.