We agree in using the same data used in the BCBS identification process for the scoring. As the G-SIBs bucket allocation depends on the data of a sample of international banks, using different data would lead to results not consistent at international level creating uncertainty and confusion among stakeholders.
As mentioned in the Basel consultation process, we especially welcome the following elements of the proposal:
1. the introduction of a broad set of criteria to identify systemic risk
2. the gradual approach that introduces the right incentives and reduces moral hazard.
3. The recognition of the need for further improvements and refinement in light of experience and progressive implementation.
However we think that in the forthcoming methodological reviews the following amendments should be considered:
1. The individual indicators used to capture cross-jurisdictional activity category do not, in our view, reflect what is intended in the proposal. If the
idea is to factor in the potential complexity of a cross-border bank liquidation, then this should be done by focusing on the amount of cross-border transactions conducted by any of the legal institutions within a group rather than in the whole activity outside the parent headquarters.
2. We also consider that supervisory judgment should take into account some qualitative aspects of systemic risk, such as governance policies, organizational and business model, and quality of management.
3. Especially important in this context is the resolvability of an institution. We consider that a credible crisis management framework is the key to reducing moral hazard and hence systemic risk and therefore to recovering market discipline. We welcome the FSB proposal of including a “Difficulty in resolving a firm” indicator in the Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions consultative document and consider that it would be good to also include this indicator in the G-SIBs methodology in future reviews.
We think the timelines for the identification process and entering into force adequate. However, with respect disclosure, we think that it would be better to start the disclosure in 2015 and not by July 2014. As part of these information is new for the market and is not based on prudential or financial information the markets are already familiar with, it would be advisable to take advantage of this year to educate markets in the new concepts before disclosing them in order to avoid uninformed market reactions.
Regarding the templates proposed in the EBA consultation, we have two major concerns:
• Firstly, the level of detail goes beyond the templates proposed by the Basel Committee in its systemic framework.
- The Basel templates requires the disclosure of 12 systemic indicators. These templates are a subset of the reporting tables we send to our supervisor for systemic risk calculation purposes. The reporting templates include more than 100 sub-indicators.
- The EBA draft document proposes a level of disclosure similar to the reporting templates, including the more than 100 sub-indicators mentioned above. We think that revealing this amount of information is not mandated by the Basel accord, unnecessary and even could be confusing to market participants.
We think that disclosure should be limited to the 12 indicators as requested in the Basel paper and not go beyond it in the level of detail. Especially dangerous would be to required such detailed disclosure by July 2014. If finally the more detailed disclosure is decided, it would be advisable to start the disclosure in 2015 or at least restrict the disclosure by July 2014 just to the 12 indicators.
• Secondly, there are inconsistencies in the definition of the Size indicator between the Basel Committee and EBA. According to the Basel methodology, the definition of this indicator is “…total exposures as defined for use in the Basel III leverage ratio”. Recent changes on the definition of exposures in the Basel III leverage ratio are not included neither in the CRR nor in the instructions to fulfill EBA templates. Hence, the Size indicator considered for identification purposes in the G-SIBs list will be different from the Size indicator published in the disclosure template. Given the significant difference between these two definitions and the weight of this indicator in the identification framework (20%), this divergence could undermine the aim of transparency and level playing field that the disclosure exercise pursues.
We missed an impact assessment on the implications of the proposal on disclosure. As for the RTS, different options should be analyzed in a cost-benefit basis. In this case, costs should not be measured only as a function of resources from financial institutions but also in qualitative terms (for example, the “noise” generated to market participants or unintended consequences of disclosing certain information). In the same vein, benefits should be judged in relation to their costs. All disclosed information, specially the one required beyond the Basel templates, should be justified by this assessment.