Response to consultation on guidelines on disclosure of encumbered and unencumbered assets

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Should the disclosure information on encumbered and unencumbered assets, in particular on debt securities, be more granular and include information on, for example, sovereigns and covered bonds? Please explain how sensitive the disclosure of this information is.

Yes, we believe that there should be greater granularity of information regarding encumbered and unencumbered assets, particularly in the event of a problem arising with a particular bank. More alignment in the information between regulators and unsecured creditors is also vital.

Should the disclosure information on encumbered and unencumbered assets also include information on the quality of these assets? What would be a suitable indicator of asset quality? Please explain how sensitive the disclosure of this information is.

Yes, information regarding the credit quality of the assets should be included. These should be based on the lowest rating from S&P, Moody’s and Fitch.

Do you think that the disclosure required in Template A could lead to detection of the level and evolution of assets of an institution encumbered with a central bank, given that the information should be disclosed based on median values (see paragraph 7 of Title II) and the lag for disclosure is 6 months (see paragraph 10 of Title II)?

Median values are useful to stop any potential ‘window dressing’ at a given point in time but inter-quartile ranges would also be advisable.

Should the disclosure of information relating to the ‘nominal amount of collateral received or own debt issued not available for encumbrance’ on unencumbered collateral be requested? Please explain the relevance of this information for market participants and the sensitivity of the disclosure of this information.

Market value would be more informative, particularly during times of stress when the value of the assets could potentially be falling rapidly.

Do you agree with the proposed granularity of Template B given that collateral swaps with central banks will not be disclosed? Please explain how sensitive the disclosure of this information is.

In times of financial stress, if a bank has engaged in collateral swaps with a central bank, revealing this information could lead to a crisis of confidence and to systemic risk.

Do you think that the information on the sources of encumbrance in Template C is too sensitive to be disclosed? Should this information be disclosed in Template D instead (as narrative information)? Please explain the relevance of this information for market participants and the sensitivity of the disclosure of this information.

Contingent liabilities should be disclosed although the enforceability could differ across jurisdictions.

Should the information be disclosed as a point in time (e.g. as of 31 December 2014) instead of median values? Please explain why.

A point in time approach could lead to misleading ‘window dressing’. Our preference would be for median values and inter-quartile ranges.

Do you agree with the proposed list of disclosures under narrative information in Template D? Should the guidelines explicitly state that emergency liquidity assistance by central banks (ELA) should not be disclosed?

We are concerned about the recommendation to classify as unencumbered assets legally pledged to central banks for emergency funding. Pension funds could well be lending on an unsecured basis to stressed banks while regulators with access to more information would remain fully secured. This lack of disclosure could prove more destabilizing than full disclosure of a bank's ELA as investors presume the worse in the instance of complete information.

Do you agree that the disclosures should be published no later than six months after the publication of the financial statements? Do you consider a time lag of no more than six months sufficient to ensure that the information disclosed will not adversely impact the financial stability of markets and institutions?

Disclosures should be published at the same time as the financial statements given that they relate to the same point in time.

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Name of organisation

NAPF (National Association of Pension Funds)