The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 47 UK building societies. Mutual lenders and deposit takers have total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of £245 billion, 20% of the total outstanding in the UK. They hold more than £250 billion of retail deposits, accounting for 22% of all such deposits in the UK. Mutual deposit takers account for 31% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
The BSA is content with the rationale behind these draft RTS explained on pages 5 to 7 of the CP. We particularly support the points made on page 7 affirming (i) the eligibility of GCRAs for inclusion in Tier 2 own funds, and (ii) that the existence of an SCRA for a group of exposures does not drive a conclusion that any default event has occurred for individual obligors.
We also agree that the RTS should be drafted in a way that can be applied irrespective of the accounting framework, as a few of our members use IFRS but the majority use national GAAP.
Q1 - While we are broadly content with the key specifications contained in paragraphs 4 and 5 of Article 2, we consider that paragraph 2 indent (b) would be clearer if it referred to potential credit risk losses.
Q3 – We are content with the policy choice regarding the allocation of SCRAs for group exposures.
Q4 – We think the effectiveness of Article 6 could be improved by adding the following wording, further supporting the point made in Recital 8: “Consequently, the existence of an SCRA for a group of exposures is not sufficient reason to conclude that default events have occurred for individual obligors within that group.”
Questions 6 – 9 – We have no concrete information from our members about the cost benefit aspects.
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EBA consultation paper on credit risk adjustments