The outcome of CEBS's review of banks' transparency in their 2008 audited annual reports showed improvements whereas the analysis of Pillar 3 disclosures indicates a need for further convergence.
The Committee of European Banking Supervisors (CEBS) has published today two reports setting out the outcome of its efforts in assessing banks' disclosures published i) in their 2008 audited annual reports on activities and exposures affected by the financial crisis and ii) under Pillar 3.
i) Assessment of 2008 annual report disclosures
For the 2008 annual report disclosures the findings of the analysis (performed for 23 large banks with cross-border activities) show that the CEBS good practices published in June 2008 have been covered quite extensively by many banks. The report also notes a significant increase of disclosures compared to the previous analyses CEBS carried out with regard to both the 2008 last quarter and preliminary year-end, and the interim results.
At the same time CEBS identifies a number of areas within the CEBS good practices – mostly in the context of accounting-related disclosures - where disclosures could be further improved, including disclosures on fair value measurement and related methodologies.
The crisis led CEBS to look beyond its June 2008 good practices. This expanded view allowed CEBS to identify aspects that institutions should pay particular attention to in order to ensure that their disclosures reflect the most recent developments. These aspects include impairment of financial instruments and of goodwill and ‘new' areas or exposures affected by crisis.
This fourth analysis reflects the additional monitoring that CEBS has carried out with respect to banks' transparency. Past efforts resulted in i) CEBS's good practices published in the June 2008 'Report on banks' transparency on activities and products affected by the recent market turmoil ii) the related follow-up report published in October 2008 assessing how the CEBS June 2008 good practices had been implemented, and lastly iii) the follow-up review of bank's transparency in their last quarter and preliminary year-end results published in March 2009.
As a next step, CEBS will develop a set of high-level disclosure principles to help banks prepare disclosures covering areas or activities that warrant particular attention or that are under stress.
For the development of these high-level principles, which are intended to be fully compatible and consistent with other disclosure initiatives and existing requirements, CEBS will liaise and consult with stakeholders.
ii) Assessment of 2008 Pillar 3 disclosures
In line with the July 2008 ECOFIN conclusions CEBS also analysed the Pillar 3 disclosures provided by 25 banks. CEBS recognises that a huge effort has been made to provide market participants with information allowing for better assessment of bank's risk profile and capital adequacy.
Banks have notably enhanced the level of quantitative and qualitative information regarding credit risk and securitisation activities; however there are specific areas where further improvements could be made:
the composition and characteristics of own funds;
the back testing information for credit risk and market risk;
the quantitative information on credit risk mitigations and counterparty credit risk; and
the granularity of information on securitisations.
CEBS will continue to closely monitor Pillar 3 disclosures in order to ensure that market discipline mechanism operates effectively and contributes to enhance the quality and the comparability of the Pillar 3 disclosures.
While it is not envisaged issuing guidance in the area of Pillar 3 disclosures at this stage, CEBS nevertheless intends to foster further convergence of Pillar 3 disclosure practices through liaison with the industry. For this purpose an open meeting is foreseen to be held in early autumn 2009.