18 June 2008
The Committee of European Banking Supervisors (CEBS) has published today the findings of an assessment of banks' transparency with regard to the activities and instruments affected by the recent market turmoil. This assessment has been carried out in accordance with the roadmap of the ECOFIN issued in October 2007 in response to the financial markets situation.
CEBS analysed the disclosures made by 22 large banks – 19 of which originate from the EU - in the context of their 2007 4th quarter and preliminary results and 2007 audited annual reports.
The assessment not only covered disclosures on exposures and their impacts on results but also looked at information on business models, risk management practices and accounting and valuation practices.
The main findings of the analysis showed that institutions made:
- limited disclosures on the business models underlying the activities affected by the sub-prime crisis and the related risk management practices (especially liquidity risk);
- diverse disclosures on exposures and on the impact of the crisis;
- generic disclosures on the valuation of exposures affected by the market turmoil and their accounting; and
- varied presentations of disclosures.
The findings allowed to identify examples of disclosures which CEBS believes represent good practice. CEBS considers these disclosures to be particularly informative. They are set out in Annex 1 of the report. CEBS believes that these good practices provide examples of:
- comprehensive disclosures on business model and risk management;
- meaningful disclosures on exposures and impacts, with appropriate levels of granularity;
- useful disclosures on accounting policies; and
- improved presentation of the disclosures.
CEBS believes that these observed good practice disclosures contribute to the improvement of disclosures on exposures and activities affected by the market turmoil.
The practices are consistent with the recommendations made in the report of the Financial Stability Forum (FSF) ‘Enhancing market and institutional resilience'. They are also in line with the ‘Leading practice disclosures for selected exposures' identified by the Senior Supervisors Group (SSG).
CEBS's good practice disclosures in some areas develop and supplement those efforts. CEBS's practices promote disclosures that ‘tell a coherent story' to help understand the background to an activity, its impact and importance, as well as its management.
CEBS recommends the application of the observed good practices by all banks, albeit in a manner commensurate with an institution's exposures and involvement in the activities affected by the crisis.
As disclosure practices will develop over time, as will the ‘high risk' areas that require specific attention, CEBS will investigate how the good practices should be applied in the longer run. CEBS will also closely monitor the disclosures by institutions in their forthcoming (i.e. half-year) reports before deciding on any further measures.
To discuss the findings of the report and the good observed practices with industry representatives and other interested parties CEBS will organise an open workshop in its premises in London on 3 July 2008 from 14:00 to 16:30.