Response to consultation on draft RTS on IRRBB supervisory outlier tests
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Regarding the one-year time horizon and a constant balance sheet approach with current commercial margins for new business, we would like EBA to clarify the following points for the NII SOT:
a) reporting institutions might have significant outstanding balances (as of the date of calculation of the SOT) referring to some very short-term transactions (e.g. overnight placements). However, such transactions do not occur in every institution with the same frequency throughout the year, which can significantly distort the NII value and its changes in the stress scenarios under a constant balance sheet approach. We would like the EBA to provide a clarification on the treatment of such transactions for the purpose of the SOT in order to ensure the comparability of results between the reporting institutions?
b) commercial margins for products might be revised at frequencies different from the market (e.g. internal price-lists) or might have been set in the distant past, without observable market prices being available. Hence, we would like EBA to provide a clarification on the meaning of “recently bought or sold products” (article 5 e) and whether these should ignore the individually negotiated contracts that do not reflect the market.
We would like EBA to provide a clarification on the rationale for the two time horizons (16 and 10 years) to be used as per article 2 b) for the calculation of the daily average interest rate and whether the two time horizons shall be determined on a rolling basis at each date of calculation of the SOT
We would like EBA to provide a clarification on the provision of article 4 f), namely whether the distribution of cash flows should include known components of the interest rate beyond the repricing date, as specified in the p.102 of the 2016 Basel Standards on IRRBB
We would like EBA to provide a clarification on the meaning of “other market factors” in article 4 n)
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.
Whereas we fully acknowledge the necessity of recalibration of the lower bound for the Euro currency, applying negative lower bounds for currencies, for which observed IR levels never dropped below 0 can distort the picture for both the Economic value and the NII perspectives. We would recommend limiting at 0 the post-shock IR levels for those currencies and perform a recalibration upon necessity.Regarding the one-year time horizon and a constant balance sheet approach with current commercial margins for new business, we would like EBA to clarify the following points for the NII SOT:
a) reporting institutions might have significant outstanding balances (as of the date of calculation of the SOT) referring to some very short-term transactions (e.g. overnight placements). However, such transactions do not occur in every institution with the same frequency throughout the year, which can significantly distort the NII value and its changes in the stress scenarios under a constant balance sheet approach. We would like the EBA to provide a clarification on the treatment of such transactions for the purpose of the SOT in order to ensure the comparability of results between the reporting institutions?
b) commercial margins for products might be revised at frequencies different from the market (e.g. internal price-lists) or might have been set in the distant past, without observable market prices being available. Hence, we would like EBA to provide a clarification on the meaning of “recently bought or sold products” (article 5 e) and whether these should ignore the individually negotiated contracts that do not reflect the market.
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?
We would like EBA to provide a clarification on how the split per currency of the administrative expenses should be performed (e.g. by multiplying with the weight of assets or liabilities in each currency?)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 would like EBA to provide a clarification on whether some longer maturities (e.g. 20Y) can be ignored for the calculation of the daily average interest rate as per article 2 a) due to non-material outstanding amountsWe would like EBA to provide a clarification on the rationale for the two time horizons (16 and 10 years) to be used as per article 2 b) for the calculation of the daily average interest rate and whether the two time horizons shall be determined on a rolling basis at each date of calculation of the SOT
We would like EBA to provide a clarification on the provision of article 4 f), namely whether the distribution of cash flows should include known components of the interest rate beyond the repricing date, as specified in the p.102 of the 2016 Basel Standards on IRRBB
We would like EBA to provide a clarification on the meaning of “other market factors” in article 4 n)