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European Banking Federation

As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

The information to be disclosed should not be more granular on the ground that it will not be possible to reconcile those data. Adding the mentioned data would, moreover be very sensitive considering that it might highlight to the market for instance, that all assets are encumbered.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

We do not believe that it would be appropriate for encumbrance/unencumbrance disclosures to also include information about the quality of the assets considering that no relevant indicators are available to assess the quality of an asset.

- It might be considered taking ratings into account to assess credit quality. However, there seems to be a consensus that there is a need to restrict the reliance on ratings. As a consequence, it does not seem appropriate to make use of ratings as a relevant indicator.

- Liquidity might be used as an alternative indicator. However, the classification relies to all banks individually, so this could cause a problem of comparability between institutions.

It needs to be emphasised, moreover, that, as indicated above, the disclosure of any information relative to the quality of assets is sensitive. This is particularly true if EU institutions were to be made subject to such a requirement whilst their competitors established in other jurisdictions would not. As a consequence, market participants might erroneously be led to believe that EU banks would be in a weaker position than their competitors.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

We do not believe that template A allows identifying what is pledged to a central bank.

We fully understand the rationale behind the suggestion to use median figures, i.e. to avoid disclosing the risk that sporadic spikes of secured funding are disclosed. We wonder, however, how banks would be expected to reconcile median figures with balance sheet figures and would be grateful for the final draft Guidelines to provide specific guidance on this. Furthermore, using median figures would not be easily understandable by investors and not allow transparency considering that they do not match with the balance sheet figures. Furthermore, considering that those figures may possibly be disclosed only after a considerable time lag, we are not convinced that such an approach would contribute to achieving the objective of transparency - also considering that the bank’s situation may have been considerably improved, or deteriorated, in the meantime. Point-in-time figures would, in contrast, be less burdensome to implement and allow comparability across institutions.

The EBA proposal is flawed because it would make market participants believe that a bank which has pledged all of his assets to its central bank would be in a far better position than a bank that does not at all rely on central bank funding but would instead have engaged in secured funding in private markets.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

Row 070 of template B (collateral received) requires disclosing the nominal amount of unencumbered collateral received or own debt securities issued not available for encumbrance whilst Row 010 and Row 040 of template B require disclosing fair value figures.

As a result, the proposed templates will implicitly disclose the level of the applied haircut.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

We agree that it would be inappropriate to disclose data on collateral swaps with central banks because this information is too sensitive.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

We agree that information on the sources of encumbrance is too sensitive to be disclosed, particularly if wrong data would be disclosed.

Template C seems consistent with what is already required under the asset encumbrance reporting framework. This data – e.g. on securities lending, which is not included in the financial statements - is relevant to the market. It needs to be highlighted that the FSB has invited the EDTF to review its asset encumbrance template to fill in this gap.

From a practical point of view we recommend disclosing only the total amount (L10), on the ground that the breakdown will depend on every institution’s way of interpretation considering that many transactions may be multi-category. As a result, undertaking comparisons across institutions along these lines will be a complex exercise. Against this backdrop, we believe that disclosing information on the sources of encumbrance would be likely to be misinterpreted by the market. Providing approximate information to the market is not the objective sought by ESRB and EBA.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

We refer to the answers provided above to Question 3 explaining that median values do not fulfill the transparency criterion and, moreover, that the use of median values may create difficulties for investors wishing to match those values with balance sheet figures which are point in time. As a consequence, point in time figures on asset encumbrance would be consistent with the overall balance sheet presentation.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

The ESRB Recommendation suggested that the EBA guidelines should include “a voluntary narrative, by which credit institutions would provide the users with information that may be useful to understand the importance of encumbrance in the credit institutions’ funding model”. The EBA consultation, in contrast, proposes that narratives on encumbrance become mandatory without explaining why it believes it to be necessary to overrule the ESRB recommendation on this. We agree with the ESRB that a narrative should be required only whenever the institution would believe this to be relevant. Such an approach would, moreover, be easier to reconcile with the Principle of Proportionality, which is overarching.

We have not gained any experience with the consequences of disclosing emergency liquidity assistance provided by central banks. It should probably be up to the central bank to decide if it would be appropriate disclosing ELA.
As we carefully explain in the uploaded file, the EBA has major flaws. The EBA should recognise at this stage of the proceedings that transparency is sufficiently taken care of whenever banks comply with the disclosure requirements imposed by IFRS 7 as supplemented by the FSB sponsored disclosure guidance and best practices recommended by the Enhanced Disclosure Task Force.

As explained above, we fully agree that it would be crucial to ensure that the information disclosed will not adversely impact the financial stability of markets and institutions.

We believe, however, that it would not be helpful putting too much emphasis on one of the specific components of the mix that the EBA is proposing. What matters ultimately is the way in which the various components of the proposed package tie in with each other.

We would like to suggest, finally, that the final version of the forthcoming Guidelines would explicitly confirm that the proposed disclosures need to be made on a yearly basis.
Wilfried Wilms
+ 32 2 508 37 31