Response to consultation on Regulatory Technical Standards on prudent valuation
Question 2. Do you have any comments on the amendments to Article 3 in general, and specifically with regard to the threshold of ten contributors set out in paragraph 2, point (d)? If you consider a different threshold should be applied, please describe how to set it, and provide a rationale and evidence supporting your proposal.
The Bank supports the use of consensus prices. The Bank would like to highlight that banks with a special purpose like for example public banks which use the Prudent Valuation Core Approach due to the amount of fair valued assets and liabilities in the banking book, don’t have access to consensus prices as they only execute a limited amount of trades per year just for funding and ALM purposes. Due to the limited amount of trades also for Article 3.2.b Public Banks don’t have own records to be used for this purpose.
In conclusion what remains is tradable quotes or buy trades from across the market. For tradable quotes the Bank seeks clarification of what is meant with tradable quotes vs indicative broker quotes? For a public bank it is challenging to prove that the quotes seen in for example Bloomberg always are executable, due to the few trades, even though all executed trades have been close to the price presented in the Bloomberg terminal.
In addition, the Bank’s view is that if the quotes seen in for example Bloomberg are classified as indicative, banks that don’t have a trading book nor are market makers should be allowed to use indicative quotes in the Range based approach. Banks would be forced to buy executable price data which would include trades and indications in any case. This means that the change would only increase costs without additional value from the Bank’s perspective.