Response to consultation on draft RTS on IRRBB supervisory outlier tests
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▪ In the calculation of the NII SOT, we would appreciate more clarity on off-balance-sheet items. If loan commitments are to be considered in the outlier test in the NII, this would result in an increase in the balance sheet despite a constant balance sheet assumption.
▪ A dynamic balance sheet, including consideration of future payments on loan commitments and dynamic new business planning, would be more appropriate, in our view, as this better reflects reality and would greatly increase the informative value of the NII SOT. A dynamic balance sheet is therefore preferable to a constant balance sheet assumption, particularly with regard to the bausparkasse business model.
▪ The use of current margins also seems to us to be closer to reality and therefore more appropriate than historical margins.
▪ The methodology for the consideration of market value changes in the NII SOT is adequately described.
▪ However, we do not regard consideration of the FV change in the NII appropriate (see above), as this leads to intermixing between present value effects and income statement effects (and, to some extent, to duplicate measuring). Depending on the business model, institutions may even be “compelled” to keep a high volume of securities that are valued above the fair value reserve. However, if the liabilities side (counterpart transaction) is not accounted at FV, this produces an incomplete/distorted picture which results purely from accounting effects. In the SOT, the measurement of the change should therefore be limited to net interest income.
Metric 2 is less suitable for measurement, for several reasons:
In Metric 2, historical accounting variables in risk measurement are considered, with both administrative expenses and the calculation of alpha values. From our perspective, this should be viewed critically, particularly due to the intermixing of different periods and possible one-off balance sheet effects included in this. Intermixing between NII and income statement items outside the NII in the outlier test could create steering impulses due to past accounting effects, which have no significance economically.
The description of the metrics are, in our view, sufficiently precise and comprehensive.
Respondents are also kindly requested to express whether they find an inclusion of market value changes in the calculation of the NII SOT clear enough.
▪ The recalibrated lower bound is, in our view, set too “conservatively”.▪ In the calculation of the NII SOT, we would appreciate more clarity on off-balance-sheet items. If loan commitments are to be considered in the outlier test in the NII, this would result in an increase in the balance sheet despite a constant balance sheet assumption.
▪ A dynamic balance sheet, including consideration of future payments on loan commitments and dynamic new business planning, would be more appropriate, in our view, as this better reflects reality and would greatly increase the informative value of the NII SOT. A dynamic balance sheet is therefore preferable to a constant balance sheet assumption, particularly with regard to the bausparkasse business model.
▪ The use of current margins also seems to us to be closer to reality and therefore more appropriate than historical margins.
▪ The methodology for the consideration of market value changes in the NII SOT is adequately described.
▪ However, we do not regard consideration of the FV change in the NII appropriate (see above), as this leads to intermixing between present value effects and income statement effects (and, to some extent, to duplicate measuring). Depending on the business model, institutions may even be “compelled” to keep a high volume of securities that are valued above the fair value reserve. However, if the liabilities side (counterpart transaction) is not accounted at FV, this produces an incomplete/distorted picture which results purely from accounting effects. In the SOT, the measurement of the change should therefore be limited to net interest income.
Question 2: Do respondents have any comment related to these two metrics for the specification and the calibration of the test statistic for the large decline in Article 6 for the purpose of NII SOT? Specifically, do respondents find the inclusion of administrative expenses in metric 2 clear enough? Do respondents have any comment on the example on currency aggregation for metric 1 and metric 2?
Metric 1 is more appropriate for calculation of the NII SOT. In comparison to the second variant, this metric is more transparent, offers better comparability and is closer, in terms of methodology, to the previous risk measurement (NII) and the outlier test in EVE.Metric 2 is less suitable for measurement, for several reasons:
In Metric 2, historical accounting variables in risk measurement are considered, with both administrative expenses and the calculation of alpha values. From our perspective, this should be viewed critically, particularly due to the intermixing of different periods and possible one-off balance sheet effects included in this. Intermixing between NII and income statement items outside the NII in the outlier test could create steering impulses due to past accounting effects, which have no significance economically.
The description of the metrics are, in our view, sufficiently precise and comprehensive.
Question 3: Do respondents consider that all the necessary aspects have been covered in the draft regulatory standard? Do respondents find the provisions clear enough or would any additional clarification be needed on any aspect?
We consider that all aspects have been covered and the provisions are clear enough.Upload files
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