Response to consultation on Guidelines on disclosure requirements under Part Eight of Regulation (EU)
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The Guidelines should limit options and discretions regarding scope inclusion. The Guidelines allow competent authorities (CAs) to require institutions to provide more frequent disclosures. However, an investor or depositor will not always know why a CA in one country chooses to use this discretion, and why a CA in another country not. Consequently, investors and depositors may start worrying why some banks in some countries do not provide more frequent disclosures, whereas other, comparable, banks in other countries do provide more frequent disclosures. The banks in countries where the CA does not require more frequent disclosures may be less trusted as a result, which may have repercussions for funding costs and financial stability.
Options and discretions regarding scope inclusion should be banned also because banks and CAs may self-select and choose to disclose more frequently only in good times. As a result, the general public will be fooled into thinking that all is well.
Quarterly disclosures should the norm: the frequency of the semi-annual disclosures should be changed to quarterly. For example, banks report full information on Own Funds on a quarterly basis to the CA. There is no reason to not disclose this information on a quarterly basis to a wider public.
One advantage of more uniform disclosure requirements is that is makes it a lot easier to analyse and compare banks for research purposes. It is nuisance if there are gaps in the data, or if the disclosure frequency of items varies from quarter to quarter.
Another advantage of compulsory quarterly disclosures is that banks with different year-ends are easier to compare against their peers with December year-ends.
The Guidelines explore the idea of publishing Excel files. This idea has merits for sure, but it is impractical in that it will likely lead banks to post the data in non-uniform ways on dispersed locations. Users will have to visit bank web-sites separately to gather the information they need, then merge the data into a format that enables analysis. Even if a user works very hard to gather all spreadsheets, she may not be able to retrieve data of all banks. To make meaningful comparisons, and for meaningful analyses, one needs complete, standardised, frequent data.
The data should be in a format that allows analysis without the use of Microsoft Office: not all users have access to Excel. Moreover, a growing number of users have access to freely available statistical software (R, Python). Therefore, standard csv format with variables in columns and bank and time identifiers in rows will suffice.
This is an opportunity for the EBA/EC: it could require banks to submit the relevant data to a central repository, or it could require Members States to post selected data from existing sources (e.g. FINREP or COREP) to this repository.
Last but not least, it is not clear what happens if a bank disappears. Data of banks that aren't there anymore should be kept available.
Question 1: Do users prefer a comprehensive template providing a breakdown of capital requirements and RWA by exposure classes for credit risk in Template EU OV1-B, or would they prefer to have the detailed breakdown by exposure classes provided in Template EU CR5-B for the Standardised approach and Template EU CR6 for the IRB approach?
-Question 2: Do members prefer a breakdown by exposure classes for Article 442 CRR using the granularity from COREP, the CRR or the Transparency exercise? In case users prefer a combination of the different exposure classes available in these breakdowns, please indicate the combination you would favour.
-Question 3: Do you believe information on the exposure-weighted average maturity by PD grade is useful for understanding of an institution’s IRB RWA?
-Question4: Would it be feasible to breakdown the value adjustments and provisions by PD grade for the fixed PD grade bands that are provided in the masterscale? Would this information be useful to users?
-Question 5: Is information on the sources of counterparty credit risk (breakdown by type of transactions) for exposures measured under the Internal Model Method useful for users? Should this breakdown be expanded to the other methods of computation of the exposure value?
-Question 6: Is the split of credit derivatives between used for the institution’s own credit portfolio and one for credit derivatives used in the institutions’ intermediation activities useful or relevant to users? What definitions or policies do you currently use to identify credit derivatives used for your own portfolio, and credit derivatives used for your intermediation activities?
-Question 7: Which impediments, if any, including issues of availability of information, currently prevent you from disclosing the information on total (Standardised plus Internal model approaches) capital requirements by types of market risk as required under Article 445 CRR or are likely to render the disclosure of Template EU MR1-A unduly burdensome?
-Question 8: Is the separate disclosure of end of period and average values for VaR, stressed VaR, IRC and CRM useful for users?
-Question 9: Do you agree with the proposed scope of application of the Guidelines?
The scope of the Guidelines should be wide. Scope limitations deprive some depositors and investors from information to monitor banks. Limits to G-SII or O-SII may make sense from the position of the disclosing banks, and for reasons of proportionality. However, these banks are generally well-monitored by supervisors, press, and media. Smaller banks are followed less intensively. The Guidelines should make a solid effort to make up for this potential gap in monitoring.The Guidelines should limit options and discretions regarding scope inclusion. The Guidelines allow competent authorities (CAs) to require institutions to provide more frequent disclosures. However, an investor or depositor will not always know why a CA in one country chooses to use this discretion, and why a CA in another country not. Consequently, investors and depositors may start worrying why some banks in some countries do not provide more frequent disclosures, whereas other, comparable, banks in other countries do provide more frequent disclosures. The banks in countries where the CA does not require more frequent disclosures may be less trusted as a result, which may have repercussions for funding costs and financial stability.
Options and discretions regarding scope inclusion should be banned also because banks and CAs may self-select and choose to disclose more frequently only in good times. As a result, the general public will be fooled into thinking that all is well.
Quarterly disclosures should the norm: the frequency of the semi-annual disclosures should be changed to quarterly. For example, banks report full information on Own Funds on a quarterly basis to the CA. There is no reason to not disclose this information on a quarterly basis to a wider public.
One advantage of more uniform disclosure requirements is that is makes it a lot easier to analyse and compare banks for research purposes. It is nuisance if there are gaps in the data, or if the disclosure frequency of items varies from quarter to quarter.
Another advantage of compulsory quarterly disclosures is that banks with different year-ends are easier to compare against their peers with December year-ends.
Question 10: In case you support the development of key risk metric template(s) that would apply to all institutions, which area of risks and metrics would you like to be covered in such template(s)?
As many banks as possible should present uniform, raw, data that is closely aligned with the reporting received by the supervisor (COREP, FINEP). Risk metric templates make assumptions of user needs, and one never knows if these assumptions are right or relevant. Users should be, as much as possible, in the same position as the supervisor to monitor banks.Question 11: Do you regard making available quantitative disclosures in an editable format as feasible and useful?
Yes. However, I would recommend the EBA to follow the U.S., where data of commercial banks and bank holding companies (BHCs) are publicly available in a single standard format. In addition, the history of U.S. bank data available to the public is long: quarterly BHC data dates back to 1986, call reports date back to 1976. The U.S. system allows me to collect relevant, quarterly, data for all BHCs in less than five minutes.The Guidelines explore the idea of publishing Excel files. This idea has merits for sure, but it is impractical in that it will likely lead banks to post the data in non-uniform ways on dispersed locations. Users will have to visit bank web-sites separately to gather the information they need, then merge the data into a format that enables analysis. Even if a user works very hard to gather all spreadsheets, she may not be able to retrieve data of all banks. To make meaningful comparisons, and for meaningful analyses, one needs complete, standardised, frequent data.
The data should be in a format that allows analysis without the use of Microsoft Office: not all users have access to Excel. Moreover, a growing number of users have access to freely available statistical software (R, Python). Therefore, standard csv format with variables in columns and bank and time identifiers in rows will suffice.
This is an opportunity for the EBA/EC: it could require banks to submit the relevant data to a central repository, or it could require Members States to post selected data from existing sources (e.g. FINREP or COREP) to this repository.
Last but not least, it is not clear what happens if a bank disappears. Data of banks that aren't there anymore should be kept available.