ING Direct 2015 Annual Report Download - page 162

Contents
Who we are
Report of the
Management
Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Bank - continued
CRR/CRD IV and upcoming regulations
To accomplish this, a new Basel accord (Basel III) was adopted in 2010 and consequently translated into regulation by the EU in the
Capital Requirement Regulation (CRR) and a Capital Requirement Directive IV (CRD IV). The CRR is binding for all EU member states and
became effective per 1 January 2014, while CRD IV has been implemented in local legislation – in the Netherlands in the ‘Wet
Financieel Toezicht’ (WFT). The CRR/CRD IV requirements are further detailed out by European Banking Authority (EBA) in the form of
Implementing Technical Standards (ITS), Regulatory Technical Standards (RTS), Implementing Acts and Delegated Acts (among others
the Leverage Ratio and the Liquidity Coverage Ratio). Although not all definitions and parameters of the CRR/CRD IV have been
finalised, the key principles have been included in both ING’s risk appetite framework and daily risk management.
As next phase in regulatory requirements for banks’ risk and capital management, the regulators are focusing on the required capital
calculations across banks. Since the start of the financial crisis there has been much debate on the risk-weighted capitalisation of
banks, and specifically on whether internal models are appropriate for such purposes. These developments have suggested that
stricter rules may be applied by a later framework.
The Basel Committee on Banking Supervision (BCBS) released several consultative papers, containing proposals to change the
methodologies for the calculation of capital requirements. Within these proposals BCBS suggests methods to calculate RWA using
more standardised or simpler methods in order to achieve greater comparability, transparency and consistency. These proposals will
likely impact RWA for currently reported exposures (e.g. credit risk via revised standardised RWA floor) but may also lead to new RWA
requirements (e.g. Interest Rate Risk in Banking Book proposals).
ING Bank participates in this debate by providing to regulators both conceptual feedback on the proposals and data for their
Quantitative Impact Studies (QIS). ING Bank is of the opinion that internal models better reflect the risks in its business model, its
customers and its credit quality than a standardised approach.
Bank Recovery and Resolution Directive
Another important element of the regulatory reforms is the Bank Recovery and Resolution Directive (BRRD) that was adopted by the
European Parliament in 2014. The BRRD provides rules on insolvency proceedings in the case of failing banks with the aim of
safeguarding financial stability and preventing public funding of losses by making use of amongst other the bail-in tool. To comply
with the new rules, banks across the EU need to have recovery plans in place and cooperate with resolution authorities to determine
the preferred resolution strategy. To ensure the effectiveness of the bail-in tool, the BRRD requires banks to meet a Minimum
Requirement for own funds and Eligible Liabilities (MREL). In addition, ING Bank being a global systemically important bank (G-SIB)
needs to comply with the Total Loss Absorption Capacity (TLAC) proposal that was published by the Financial Stability Board (FSB) in
November 2015. For further details regarding MREL and TLAC we refer to the Capital Management section.
ING supports the bail-in concepts as they are an important component of the new regulatory framework, aimed at reducing the
possibility that tax payer money will be needed to bail-out institutions in the future. The bail-in concept has therefore also been at the
heart of the preparatory discussions that ING has had with the resolution authorities since 2012. This resulted in a first resolution
assessment that will serve as input for the transitional plan by Single Resolution Board (SRB) wherein SRB together with the local
resolution authorities will define (i) the point of entry (either being a Single Point of Entry or a Multiple Point of Entry), (ii) the MREL bail-
in requirements on a consolidated and a subsidiary level and (iii) the impediments to resolution that need to be addressed.
Further, ING Bank has set up an all-encompassing Recovery Plan to ensure the bank’s readiness and decisiveness to tackle financial
crises on its own strength. This plan is effective since 2012 and updated on an annual basis to make sure that it remains fit for
purpose.
Principles for Effective Risk Data Aggregation and Risk Reporting
In January 2013, the Basel Committee published Principles for Effective Risk Data Aggregation and Risk Reporting (also referred to as
PERDARR or BCBS239), following a recommendation made by the Financial Stability Board (FSB). The requirements aim to strengthen
risk data aggregation and risk reporting practices at banks to improve their risk management practices. Banks indicated as G-SIBs –
including ING Bank – are required to implement the principles by 2016. As a first step of the implementation, ING Bank performed a
’stocktaking’ self-assessment survey in 2013 and another assessment in 2014 to monitor the progress made. The publication of the
principles coincide with several projects and programs to strengthen risk data aggregation and risk reporting practices that were
already underway before these new requirements were published. During 2015 a project was set-up to ensure compliancy with
BCBS239 by addressing the items that are not part of the aforementioned projects and programs.
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