EBA consults on draft technical standards on prudent valuation

The European Banking Authority (EBA) launches today a public consultation on draft Regulatory Technical Standards (RTS) setting out the requirements related to prudent valuation adjustments of fair valued positions. The objective of these draft RTS is to determine prudent values that can achieve an appropriate degree of certainty while taking into account the dynamic nature of trading book positions. The consultation runs until 8 October 2013.

These draft RTS present a methodology to calculate additional valuation adjustments (AVAs) for the purpose of determining the prudent value of fair valued positions. To take account of proportionality and namely of those institutions with limited exposure to fair valued positions, the following two approaches are proposed:

• Simplified approach, which can be used by institutions to calculate AVAs provided their absolute value of on- and off-balance sheet fair valued assets and liabilities is below €15bn;
• Core approach, which is intended to provide a consistent framework for determining prudent valuation. In this respect, the core approach gives a clear indication of the level of prudence that institutions should aim at when estimating AVAs.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 8 October 2013.

All contributions received will be published following the close of the consultation, unless requested otherwise.

A public hearing will take place at the EBA premises on 29 July 2013 from 10:30 to 13:00 hours UK time.

Legal basis and next steps

The proposed draft RTS have been developed on the basis of Regulation 575/2013 published in the Official Journal of the European Union on 28 June 2013.

Before submitting these draft RTS to the European Commission for endorsement, the EBA will carry out a Quantitative Impact Study (QIS) to assess the capital impact of the proposed approaches for the calculation of AVAs. The QIS will also be used to calibrate the thresholds and underlying assumptions of AVAs.

The EBA envisages to finalise and to submit the draft RTS to the European Commission in the second quarter of 2014, after completion of the QIS.