Response to consultation on the ITS on Supervisory Reporting with regard to IRRBB reporting
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• Sign convention: Please explain clear for which row/column in which template do you strictly expect a positive sign, when do you expect a positive sign, but are aware of possible exemptions and when are both signs equally possible.
• Please specify how many digits/decimal places are expected for monetary units and for percentages.
• If only one currency is relevant in template J 01.00 according to EBA RTS on SOT, is it necessary to report an aggregate template? If yes, are the aggregation rules described in article 4 (1) EBA RTS on SOT to be applied?
• Please clarify which positions are expected under the MV instruments (J 01.00 rows 0150, 0160, 0170; J 02.00 and J 03.00 rows 06XX)? Especially if the institution is not reporting IRRBB figures using IFRS accounting, but national accounting rules.
• Weighted average yield: Please clarify if it is possible to report the weighted average yield without commercial margins (as mentioned e.g. in RTS on SOT Article 4 (i)).
• Please describe exactly what does “Conditional Cash Flows” mean (Template J 08.00, Row 0080)?
NII: J 02.00: 2 FTE for one month (plus external costs for changes in software)
J1: 1 FTE for ½ month
EVE: internal effort expected is 2 FTEs for 6 months only for our institution. Moreover 1 additional FTE for 3 months is expected for the implementation of the reporting of 47 SNCIs which have outsourced it to us.
Much effort will be necessary in the overly detailed sub-separation of the product classes in Templates J 02.00 and 03.00. E.G. in template J 02.00 rows 0070, 0080, 0170, 0180, 0190, 530, 540, 550.
In addition, there will be need for some changes in standard software systems used for IRRBB calculation and reporting. For these changes no valid expected price is available to us. The most challenging parts are:
• The separation of the PV of derivatives into asset/liability positions. In our IRRBB-software this is currently not possible.
• Reporting the PVO1 and repricing cash flows of instruments with embedded automatic options having their embedded options stripped from the host contract.
The expected frequency of the templates is feasible.
First because the implementation effort in absolute numbers (e.g. FTEs) should be approximately the same for large and other institutions, but is disproportionately burdensome for other institutions.
Second other institutions are not bearing the same systemic risks as large institutions and should therefore not be obliged to fulfill the same detailed reporting requirements as large institutions.
Especially some detailed information is overly burdensome for the, in our view, not necessary information it gives (J 02.00 and J 03.00):
• separation of loans into Retail / Wholesale non-financial
• further separation of Retail loans
• breakdown of Derivatives by counterparty
There is no need for additional templates for other institutions, but the proportionality could be implemented by marking some of the rows as optional (non obligatory) in the instructions for other institutions.
We would propose for template J 03.00 the same approach as for template J 02.00, to report it in rows. We generally prefer a more uniform design to the templates in order to reduce implementation efforts/costs.
Yes, because carrying amount and exposure amount are currently not in the scope of our IRRBB reporting framework and thus not included in the corresponding software and processes. Our IRRBB reporting is based on Nominal amounts because they are the basis for calculations of interest, PVO1, present value and repricing cash flows.
Therefore, the challenge would be enormous for a, in our view, not important bit of information.
Nevertheless, for some questions special issues arise:
Row 0180: Is it possible to choose multiple items here? E.G. if one has a two-step approach to model NMDs with a time series model and a replication portfolio.
Row 0190: The aim of this question is unclear. Is the emphasis on identifying core balances at all, or on identifying those core balances unconditional to the IR scenario? It is also unclear, of what use this information could be.
Row 0200: The aim of this question is unclear. Core balances are identified as “unlikely repricing even under significant changes of the interest rate environment” (RTS on SA Article 7 5. (b)). Please either give a choice list for this question or some examples or a more detailed description.
Row 0250: This question is redundant in our view, because the answer can be drawn out of the data in template J 02.00/03.00 or J 05.00/J 06.00 depending on the institute.
Row 0260: It is not clear which type of answer is expected. Is the answer one or more of the scenarios? Or is the answer a description of the planned changes in the mentioned strategies?
Question 1: Are the instructions and templates clear to the respondents? More specifically, do respondents consider that all definitions are unambiguous and accurate (e.g. linear and non-linear derivatives, contingent assets and liabilities, total assets/liabilities with impact on MV, etc)?
Not all Instructions are clear. Following instructions need more clarity:• Sign convention: Please explain clear for which row/column in which template do you strictly expect a positive sign, when do you expect a positive sign, but are aware of possible exemptions and when are both signs equally possible.
• Please specify how many digits/decimal places are expected for monetary units and for percentages.
• If only one currency is relevant in template J 01.00 according to EBA RTS on SOT, is it necessary to report an aggregate template? If yes, are the aggregation rules described in article 4 (1) EBA RTS on SOT to be applied?
• Please clarify which positions are expected under the MV instruments (J 01.00 rows 0150, 0160, 0170; J 02.00 and J 03.00 rows 06XX)? Especially if the institution is not reporting IRRBB figures using IFRS accounting, but national accounting rules.
• Weighted average yield: Please clarify if it is possible to report the weighted average yield without commercial margins (as mentioned e.g. in RTS on SOT Article 4 (i)).
• Please describe exactly what does “Conditional Cash Flows” mean (Template J 08.00, Row 0080)?
Question 4: How many full-time equivalent (FTE) employees does your institution expect to involve in the implementation for how many months in order to report in a compliant way? Please provide indications for specific templates and options relevant for your institution. Please also indicate whether the same implementation will be used by many reporting institutions such that costs are shared among them.
One significant member institution:NII: J 02.00: 2 FTE for one month (plus external costs for changes in software)
J1: 1 FTE for ½ month
EVE: internal effort expected is 2 FTEs for 6 months only for our institution. Moreover 1 additional FTE for 3 months is expected for the implementation of the reporting of 47 SNCIs which have outsourced it to us.
Much effort will be necessary in the overly detailed sub-separation of the product classes in Templates J 02.00 and 03.00. E.G. in template J 02.00 rows 0070, 0080, 0170, 0180, 0190, 530, 540, 550.
In addition, there will be need for some changes in standard software systems used for IRRBB calculation and reporting. For these changes no valid expected price is available to us. The most challenging parts are:
• The separation of the PV of derivatives into asset/liability positions. In our IRRBB-software this is currently not possible.
• Reporting the PVO1 and repricing cash flows of instruments with embedded automatic options having their embedded options stripped from the host contract.
Question 5: What technical and procedural dependencies does the implementation of the ITS imply for your institution? How do they affect the time schedule of the implementation?
As mentioned in the answer on question 4 there are some implementations needed in the IRRBB software system. Since these implementations require a lot of time until they are fully operational (conception, coordination with all customers, only 1 or two releases with predefined dates per year, testing process within our institution) it will be very challenging to entirely meet the requirements within the expected implementation period of 1 year.Question 6: Do respondents agree that the decision to simplify reporting templates is the best approach in implementing proportionality? In case you do not agree, what other proposal would be more efficient to reduce costs?
We do agree that simplifying reporting templates is the best approach in implementing proportionality. This could be done also by not “duplicating” the templates, but by marking the data points in the templates as optional or not necessary for smaller institutes.Is the expected frequency for templates J 05.00, J 06.00, J 07.00 and J 08.00 feasible and proportionate?
Template J 06.00 should have the same rows as template J 05.00. As the structure has to be implemented for the most detailed template, it does not reduce costs/efforts to simplify only one of the templates.The expected frequency of the templates is feasible.
Question 8: Do respondents perceive that the reporting requirements are proportionate for institutions other than large institutions and small and non-complex institutions (‘other’ institutions)? Is there some quantitative information contained in Templates J 02.00, J 03.00 and J 04.00 that is overly burdensome? Is the expected frequency for templates J 02.00, J 03.00, J 04.00 and J 08.00 feasible and proportionate? How could proportionality be further improved for these institutions?
In our view “other” institutions should be treated differently from large institutions. The rationale for this view is twofold:First because the implementation effort in absolute numbers (e.g. FTEs) should be approximately the same for large and other institutions, but is disproportionately burdensome for other institutions.
Second other institutions are not bearing the same systemic risks as large institutions and should therefore not be obliged to fulfill the same detailed reporting requirements as large institutions.
Especially some detailed information is overly burdensome for the, in our view, not necessary information it gives (J 02.00 and J 03.00):
• separation of loans into Retail / Wholesale non-financial
• further separation of Retail loans
• breakdown of Derivatives by counterparty
There is no need for additional templates for other institutions, but the proportionality could be implemented by marking some of the rows as optional (non obligatory) in the instructions for other institutions.
Question 9: Do respondents agree that the number of currencies requested in this reporting package is proportionate? Particularly for templates J 02.00 to J 08.00, do these amended ITS request right amount of information for currencies that have a limited/marginal contribution to the IRRBB?
The thresholds for the requested currencies are proportionate.Would respondents propose a different approach to reduce the reporting costs (e.g breakdown in rows by fixed/floating rate instrument, or instead of having it in a different dimension duplicate the columns of the panel to fit fixed and floating in different columns)? Please elaborate.
One significant member institution: We do calculate some IRRBB figures broken down by fixed/floating, but not broken down by product categories.We would propose for template J 03.00 the same approach as for template J 02.00, to report it in rows. We generally prefer a more uniform design to the templates in order to reduce implementation efforts/costs.
Question 11: Do respondents currently compute the figures in column 0020 for internal monitoring and/or supervisory reporting? If not, do respondents perceive that column 0020 adds considerable reporting costs in order to calculate these figures (please consider that it would only be reported for the aggregate of all currencies)? Would respondents propose a different approach to reduce the reporting costs? Please elaborate.
One significant member institution: We do not calculate them currently. Therefore it would add considerable reporting costs especially in the NII regime.Question 12: Does the inclusion of carrying amount and credit risk exposure amount cause implementation challenges? If yes, please describe the challenges.
One significant member institution:Yes, because carrying amount and exposure amount are currently not in the scope of our IRRBB reporting framework and thus not included in the corresponding software and processes. Our IRRBB reporting is based on Nominal amounts because they are the basis for calculations of interest, PVO1, present value and repricing cash flows.
Therefore, the challenge would be enormous for a, in our view, not important bit of information.
Question 14: What other types of methodologies for EVE could be reported in row 0070?
PVO1 measureQuestion 15: What other risk-free yield curves used for discounting could be reported in rows 0320 and 0330?
Swap curve (vs Euribor)Question 16: Since it is necessary to collect qualitative information to complement the quantitative to get a full overview of the IRRBB risks from a supervisory perspective, do respondents see other IRRBB related aspects that might be necessary to cover?
NoQuestion 17: Do respondents see any issue about reporting the qualitative information in J 08.00? How do respondents consider this information in terms of usefulness and practicability?
In General, there are no issues in reporting the qualitative information on an annual basis.Nevertheless, for some questions special issues arise:
Row 0180: Is it possible to choose multiple items here? E.G. if one has a two-step approach to model NMDs with a time series model and a replication portfolio.
Row 0190: The aim of this question is unclear. Is the emphasis on identifying core balances at all, or on identifying those core balances unconditional to the IR scenario? It is also unclear, of what use this information could be.
Row 0200: The aim of this question is unclear. Core balances are identified as “unlikely repricing even under significant changes of the interest rate environment” (RTS on SA Article 7 5. (b)). Please either give a choice list for this question or some examples or a more detailed description.
Row 0250: This question is redundant in our view, because the answer can be drawn out of the data in template J 02.00/03.00 or J 05.00/J 06.00 depending on the institute.
Row 0260: It is not clear which type of answer is expected. Is the answer one or more of the scenarios? Or is the answer a description of the planned changes in the mentioned strategies?