Response to consultation on draft Guidelines on retail deposits subject to different outflows for purposes of liquidity reporting
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Even though the approach proposed above could represent a possible proxy, it should be pointed out that the set-up and maintenance of the underlying complex IT architecture may generate prohibitive costs for Banks (also in light of monthly LCR calculations and T+15 remittance date). We welcome the set-up of a working Group with EBA aimed at agreeing on common definition of active management attribute. It should be still demonstrated that “active management” of a product has a direct relation in terms of stability on the relationship with customers. In fact, products are managed and used considering the effective needs of each client. Considering the complexity of the topic, we do not support the introduction of the “active management” attribute within the LCR calculation before 2018 when 100% LCR as minimum requirement is introduced (it has to be demonstrated by consistent empirical analysis).
Furthermore, it should be pointed out that each product type may be characterized by a peculiar attribute “active management”, that may represent an intrinsic characteristic of the product (it may be normal that a product is not accessed with high frequency).
In addition, in part 2 at point 6 of the CP (Factors affecting the stability of retail deposit products - The value of the retail deposit, page 12), our institution does not have past evidence about the fact that clients with higher deposits have been less stable than clients with deposits covered by the DGS. For this reason we do not support the classification made in the CP about high value deposits and very high value deposits that considers these accounts riskier than others. We think that this is a clear example of “deposit-based” approach instead of a correct implementation of a “depositor-based” approach.
There are concepts reported in the CP that need further clarifications. First of all, significant dependence of deposits stability on price and persistence of higher outflow rates for products related to market indices need further deep assessments at EU level before being effectively adopted. In addition to this , it should be pointed out that comparison with peers may not be always be possible (especially for deposits with negotiated rates).
Moreover, notice that, taking into account the fact that right now current interest rates are low, a small rise in interest rates may imply the reclassification of some products as rate-driven under the new EBA regulatory approach proposed.
Furthermore, we have doubts also about point 9 (High-Risk distribution channel, including Internet-only access and brokered deposits”, page 14). First of all, customers that have an internet access of the banking account are not only those ones that have opened a deposit on line; in fact, also those deposit retailers that initially set up a new contract directly at branches, may additionally require to open an on line access for the same banking account. Moreover, about the possibility to react remotely and instantaneously to market movements, it’s true that through internet the risk is higher in terms of time, but however also for customers that have no access to their accounts on line, they may close deposits or transfer their amount of cash in a short time horizon (hours).The decision to transfer the available cash is independent from the fact that the client has an on line access to its account. For these reasons, we may say that there might not be a great difference if a deposit has also the access on internet, taking into account that the LCR is computed on a 30 days horizon. If this risk factor will be maintained, banks will have less incentives to use and promote this type of deposit, with the potential consequence that they may stop to offer these on line accounts.
It should be pointed out that the set-up and maintenance of all risk factors proposed by the CP may generate cumbersome costs for Banks in terms of IT architecture complexity (also in light of monthly LCR calculations and T+15 remittance date).Some of them, like the need to perform peer analysis on a monthly basis on interest-rate driven contracts seem not to be manageable, also in light of the T+15 LCR remittance date. As already mentioned above adoption of externally validated behavioral model seem to be more realistic and cost-effective.
With reference to the options outlined in the paragraph “Whether or not to prescribe a methodology to estimate the level of the higher outflow rates” we do not support option B.2, as “ concrete levels of rates that should be used for deposits identified as having higher outflow rates” should be better provided.
In addition, as we strongly believe that what should be estimated is the relationship of the client with the bank as a whole, without assessing each product type underlying its relationship with the bank. This would mean that higher outflows rates should not be applied to clients previously identified as stable, but just to the ones not meeting the requirements outlined at article 421 (1) and limited to the products having the risk factors proposed by the EBA approach.
In our opinion, there’s no point to introduce a common liquidity indicator that whose disclosure could be officially required, unless processes underlying its calculation are not fully harmonized and certified by and independent body. Data comparability and level playing field should represent a pillar of the ITS implementing the new liquidity requirements.
As already mentioned, data retrieved from internal models (to be validated by competent authorities) should represent a key component of the effective run-off rate to be applied to deposits, thus banks should have room to provide evidence on the stability of their deposits.
Do you agree with this criterion for identifying a transactional account?
No, as it is not aligned with CRR 421 (1 -b) where it seems that the crediting of salaries represents a sufficient but not necessary condition (as there could be other transactions that may be considered furthermore for SME clients there may be no salaries at all), in order to consider the account as transactional, whereas the EBA CP states that a transactional account is defined as an account on which salaries and transactions are regularly credited. Some room should be left for banks to treat certain accounts as transactional if they can provide grounded evidence to prove this.Regarding established relationships, how would you assess that the contractual relationship with the institution and the minimum number of products are active in the sense of being actively managed?
In order to assess that the contractual relationship with the institution and the minimum number of products are active in the sense of being actively managed, a criterion based on the proportion between the interests actually paid to the deposit and the total income to the bank from the relationship with the client could be proposed, provided that a clustering rule in terms of homogeneity of the depositors and cross-selling indicators (i.e. high product penetration for each relationship) is envisaged.Even though the approach proposed above could represent a possible proxy, it should be pointed out that the set-up and maintenance of the underlying complex IT architecture may generate prohibitive costs for Banks (also in light of monthly LCR calculations and T+15 remittance date). We welcome the set-up of a working Group with EBA aimed at agreeing on common definition of active management attribute. It should be still demonstrated that “active management” of a product has a direct relation in terms of stability on the relationship with customers. In fact, products are managed and used considering the effective needs of each client. Considering the complexity of the topic, we do not support the introduction of the “active management” attribute within the LCR calculation before 2018 when 100% LCR as minimum requirement is introduced (it has to be demonstrated by consistent empirical analysis).
Furthermore, it should be pointed out that each product type may be characterized by a peculiar attribute “active management”, that may represent an intrinsic characteristic of the product (it may be normal that a product is not accessed with high frequency).
In addition, in part 2 at point 6 of the CP (Factors affecting the stability of retail deposit products - The value of the retail deposit, page 12), our institution does not have past evidence about the fact that clients with higher deposits have been less stable than clients with deposits covered by the DGS. For this reason we do not support the classification made in the CP about high value deposits and very high value deposits that considers these accounts riskier than others. We think that this is a clear example of “deposit-based” approach instead of a correct implementation of a “depositor-based” approach.
What is your view concerning the threshold proposed for high and very high value deposits? Please give your reasons.
UniCredit does not have empiric evidence about different behavioral approaches among different threshold proposed: lower than EUR 100 000, between EUR 100 000 and EUR 500 000 and finally greater than EUR 500 000. In relation to “point 6 – the value of the retail deposit” (page 12), it seems that more attention is given to the value on retail deposits and not, as suggested previously, on depositors.Do you agree with the criterion for considering a deposit to be rate driven?
A careful assessment of possible changes in (national) frameworks of DGS should also be taken into consideration, in order to guarantee consistency with regards to criteria of exclusion related to deposits at interest rate conditions significantly exceeding the average rate for similar retail products offered by peers; this topic is currently under discussion at national level.There are concepts reported in the CP that need further clarifications. First of all, significant dependence of deposits stability on price and persistence of higher outflow rates for products related to market indices need further deep assessments at EU level before being effectively adopted. In addition to this , it should be pointed out that comparison with peers may not be always be possible (especially for deposits with negotiated rates).
Moreover, notice that, taking into account the fact that right now current interest rates are low, a small rise in interest rates may imply the reclassification of some products as rate-driven under the new EBA regulatory approach proposed.
Do you agree with the criteria to identify this risk factor?
No. Not necessarily there is a link between stability and the relative residence of depositors. The rationale underlying the need to open a deposit abroad may derive from an effect need and/or effective advantage in terms of remuneration.Furthermore, we have doubts also about point 9 (High-Risk distribution channel, including Internet-only access and brokered deposits”, page 14). First of all, customers that have an internet access of the banking account are not only those ones that have opened a deposit on line; in fact, also those deposit retailers that initially set up a new contract directly at branches, may additionally require to open an on line access for the same banking account. Moreover, about the possibility to react remotely and instantaneously to market movements, it’s true that through internet the risk is higher in terms of time, but however also for customers that have no access to their accounts on line, they may close deposits or transfer their amount of cash in a short time horizon (hours).The decision to transfer the available cash is independent from the fact that the client has an on line access to its account. For these reasons, we may say that there might not be a great difference if a deposit has also the access on internet, taking into account that the LCR is computed on a 30 days horizon. If this risk factor will be maintained, banks will have less incentives to use and promote this type of deposit, with the potential consequence that they may stop to offer these on line accounts.
It should be pointed out that the set-up and maintenance of all risk factors proposed by the CP may generate cumbersome costs for Banks in terms of IT architecture complexity (also in light of monthly LCR calculations and T+15 remittance date).Some of them, like the need to perform peer analysis on a monthly basis on interest-rate driven contracts seem not to be manageable, also in light of the T+15 LCR remittance date. As already mentioned above adoption of externally validated behavioral model seem to be more realistic and cost-effective.
Do you agree with the above analysis of the cost and benefit impact of the proposals?
We support EBA intention to introduce a new retail deposit category with a lower outflow based on specific characteristics of such deposits that could justify a lower outflow rate and taking into account international developments.With reference to the options outlined in the paragraph “Whether or not to prescribe a methodology to estimate the level of the higher outflow rates” we do not support option B.2, as “ concrete levels of rates that should be used for deposits identified as having higher outflow rates” should be better provided.
In addition, as we strongly believe that what should be estimated is the relationship of the client with the bank as a whole, without assessing each product type underlying its relationship with the bank. This would mean that higher outflows rates should not be applied to clients previously identified as stable, but just to the ones not meeting the requirements outlined at article 421 (1) and limited to the products having the risk factors proposed by the EBA approach.
In our opinion, there’s no point to introduce a common liquidity indicator that whose disclosure could be officially required, unless processes underlying its calculation are not fully harmonized and certified by and independent body. Data comparability and level playing field should represent a pillar of the ITS implementing the new liquidity requirements.
As already mentioned, data retrieved from internal models (to be validated by competent authorities) should represent a key component of the effective run-off rate to be applied to deposits, thus banks should have room to provide evidence on the stability of their deposits.