We believe that the current level of disclosure is sufficiently detailed. Disclosure at a more granular level is unlikely to provide information that is useful to many investors and would require a significant amount of bank resources to complete. Generally, more sophisticated investors will speak directly with bank investor relations departments should they wish to understand about specific products in more detail.
The only area where we believe there could be some benefit would be in the area of debt securities as this is such a broad category. As we suggest in our response to Question 2, we believe that the best way to capture this category in greater detail would be to align with the Liquidity Coverage Ratio (LCR) disclosures and the definitions of High Quality Liquid Assets (HQLA) used therein.
Quality is a subjective term. Although credit ratings could be used as an indicator of quality, they might not be a reliable indicator. For example a BB rated senior unsecured US corporate bond is more liquid than a BBB rated Emerging Market government bond. In a solvency scenario, the liquidity of the bond that's important.
An option which would provide a better view of the practical benefits of different assets would be aligning with HQLA definitions under the LCR. This would help ensure consistency as well as a basis in observable liquidity traits.
We would also urge the EBA to consider that under some circumstances overly granular disclosure could not only mean disclosing position sensitive information, but for weaker banks could in fact trigger a liquidity crisis. To avoid this, we believe that the disclosure should be restricted to high level asset classes.
Although Annex I does not differentiate between secured funding from central banks and from the private sector, we believe that if it was generally known that a bank was dependent on central bank funding, the level of assets encumbered with the central bank could be calculated.
We do not see the relevance of nominal values for securities in this context. If a bank needed to raise liquidity by increasing secured funding of its previously unencumbered assets, funding could only be raised up to the market value amount (subject to a haircut).
Furthermore, having a 'nominal amount of collateral received or own debt securities issued not available for encumbrance' as one category does not make sense – they are two different things.
Finally, it is not clear to us what the value in disclosing ‘own debt securities issued not available for encumbrance’ is? We would appreciate clarity from the EBA on what the aim of capturing this information is.
Overall the granularity is fine, however we believe that cell 070 should be removed – the unencumbered nominal values are not relevant and we do not see any value reporting in reporting them. As per Question 4, we urge the EBA to strike the right balance between addition compilation and reporting burden, and the actual benefit investors would get from such disclosure.
As mentioned in our response to Question 1, there is a case for more granularity in disclosures around debt securities. Should the EBA decide to pursue this, the disclosure should be aligned to template A to make the form consistent.
We do not believe that this information is highly sensitive when information on how much encumbrance an institution has already been disclosed.
We would appreciate a better understanding of why repo, secured loans and short positions have been excluded? These will likely make up the largest number of encumbered assets for most banks. Not including them in the disclosure makes the usefulness of the information questionable.
In our view it would be less onerous to disclose based on a text format (Template D). We would like to point out that we find this template to be simpler to work with, and a considerable improvement over the templates banks were asked to complete in December 2012 and June 2013.
We believe that there are significant advantages to using point in time disclosures rather than median values.
If relying on median disclosures, investors will not be able to meaningfully tie these back to the balance sheet. Quarterly reporting based on quarter end balance sheets would provide a more meaningful view and keep the disclosure consistent with other year end disclosures.
Using median values would create significant work to calculate and disclose and would not provide any extra clarity.
No, it is our view that the recommendations are overly subjective, open to interpretation, and hence not comparable between institutions.
As with reporting in other areas of liquidity reporting and disclosure, we strongly believe that this should be done at group level. Encumbrance between entities within a group is not of relevance for readers of the disclosure who would be more interested in the group position.
Once the LCR waivers have been legislated for as per the Capital Requirements Regulation, it would make sense to align the level of asset encumbrance disclosure with the level of LCR reporting.
As we have mentioned in previous responses, we have concerns about encumbrance resulting from the use of state emergency liquidity assistance not being disclosed. Our concern is this leads to firms using emergency assistance appearing better-placed than potentially stronger banks operating through normal market funding.
We believe that the indicated publications timings are sensible.