The Committee of European Banking Supervisors (CEBS) today publishes two follow-up reports setting out the outcome of its efforts in assessing banks' disclosures published, one, in their 2009 audited annual reports and, two, in their 2009 Pillar 3 reports.
This work reflects CEBS's ongoing interest in the banks' disclosure of the impact of the crisis on their activities and financial situation.
The analysis of disclosures led CEBS to identify best practices for all areas, although these examples are not intended to be either exhaustive or exclusive. They should not be construed to assess the disclosures of an individual bank as a whole. Rather they are aimed to refer peers to concrete examples they, possibly, could take inspiration from.
i) Assessment of 2009 audited annual report disclosures
In the present report, CEBS discusses the findings of its renewed analysis of banks' transparency in their 2009 annual reports, based on a sample of 24 mainly European banks, and reveals, overall, that the CEBS June 2008 good practices have been taken into account quite satisfactorily.
This is notably the case for the disclosures in business models and risk management, and, to some extent, for the disclosures on activities directly affected by the sub-prime crisis, even if there is still room for improvement in this latter area (granularity, explanation of evolution between periods and comparability).
At the same time, CEBS has identified a number of areas that offer room for improvement, mainly:
- disclosures related to fair value measurement;
- disclosures on other accounting related issues including impairment, reclassifications and consolidation;
- disclosures on other activities affected by the crisis in 2009(1)
- disclosure on remuneration schemes.
This fifth analysis marks the continuation of a series of assessments carried out since the beginning of the market turmoil in the summer of 2007. Past efforts led to i) the good practice disclosures identified in the CEBS Report on banks' transparency on activities and products affected by the recent market turmoil
published on 18 June 2008, ii) the related follow-up report
published in October 2008, assessing how the good practices identified in CEBS's June 2008 report had been implemented, iii) the Follow-up review of banks' transparency in their 2008 4th quarter and preliminary year-end results
published in March 2009, and lastly, iv) the Follow-up review of banks' transparency in their 2008 audited annual reports
published in June 2009, which led to the development of the CEBS 'Principles for disclosures in times of stress (Lessons learnt from the financial crisis)'
CEBS will continue to monitor banks' disclosures in the future.
ii) Assessment of 2009 Pillar 3 disclosures
In 2009, CEBS carried out an assessment of banks' Pillar 3 disclosures for their first-time implementation: the present report is a follow-up review of banks' transparency in their 2009 Pillar 3 disclosures. The analysis made for the same 24 banks highlights improvements in 2009 Pillar 3 disclosures, compared to those of 2008.
Banks have followed a number of best practices promoted by CEBS, and while detailed information has been provided on banks' economic capital frameworks, on their exposure to counterparty credit risk as well as to operational risk; there are specific areas where further improvements could be made, especially as regards the degree of compliance with the CRD in respect of:
- the level of detailed information on the composition of own funds;
- quantitative back-testing information for credit risk;
- information on credit risk mitigation techniques supplemented by adequate quantitative information on their impacts; and
- the valuation methodology used and detailed quantitative information on credit derivative instruments.
CEBS also observed some variations in the presentation and the content of Pillar 3 disclosures that raise comparability issues for the users. As for the annual report disclosures, CEBS will also continue to monitor Pillar 3 disclosures in the future.