UniCredit

Yes, even if the monitoring and setting of thresholds for qualitative indicators will be challenging and trigger discussions.
No; the categories are more than sufficient.
As a general remark, a strong link should be made with the institution’s Risk Appetite framework. Flexibility should be allowed to strongly leverage on those specific indicators – it is anyway very probable that these frameworks already cover the areas of capital, liquidity, profitability and asset quality, i.e. the first four categories of the Guidelines. The Risk Appetite indicators and the critical thresholds (limits, triggers, or any particular boundary) are specifically conceived taking into account the bank business model, risk and geographical footprint.
For the indicators in paragraphs three to six there should not be a rebuttable presumption for every indicator, but they should be moved directly into Annex 2. The presence of similar but better (tailor-made) indicators in the Risk Appetite framework would spur these alternatives.
Furthermore, no definitions are given for the single indicators. This would be correct if the intention is to leave some room for personalization for the single institution; if, however, there are clear expectations from the rule-makers in terms of applied definitions this would better be detailed. In that case existing regulatory definitions used in supervisory processes are preferred to avoid duplication of efforts.
Comments on specific indicators:
• on Capital indicators, it is not clear to us what is meant in paragraph 23 with “The capital indicators should also be integrated in the institution’s Internal Capital Adequacy Assessment Process (ICAAP)”. In our view the correct approach would be the other way around: (a selection of) the capital measures used in the existing ICAAP procedures should be included in the Recovery Plan set of indicators. The same approach should be applied for certain other indicators: the Recovery Plan set can take them from existing, tailor-made, efficient and tested sets of indicators used in other frameworks. Similar for Liquidity indicators, paragraph 28.
• In paragraph 33 on Profitability indicators, deviations from the Budget alone are not significant for the purposes of the Recovery Plan or meaningful in stress situations;
- in general terms, profitability indictors will move through economic cycles and are not a direct indication for the nearing of a capital or liquidity crisis; consequently they are rather weak in the Recovery Plan context, or at least should be seen as a “very early warning” indicator;
- for the indicator “Significant losses due to administrative/regulatory fine or adverse court ruling” we wonder why these specific losses should be considered and not in general the “operational risk losses”.
• On Asset Quality indicators, a useful indicator could be the ratio Loan Loss Provisions / Gross Operating Profit. If a bank is not credit intensive, but has asset quality problems, this indicator is useful to indicate if the bank is close to a crisis. If the indicator remains low, this means that the other activities of the bank more than offset the asset quality problems generated by a small part of its operations. The asset quality problem has to be faced, but without necessarily entering in an alert/alarm phase.
• Market based and Macroeconomic indicators are very indirect measures with often imprecise indications or a weak correlation for the institution’s financial and liquidity position. As in similar circumstances, these indicators alone or a temporary flection of the same are frequently not sufficient to steer concrete actions.
- In particular, stock and CDS prices (the latter also with an undefined price-making) are influenced by many factors, some not related to the institution’s financial or liquidity situation.
No, thresholds need to be personalised, tailored to individual characteristics, and then discussed with regulators in the Recovery Plan assessment.
No comment.
Bert Crielaard
U