EBA publishes follow-up review of banks transparency in their 2011 Pillar 3 reports

The European Banking Authority (EBA) published today a follow-up review aimed at assessing the disclosures European banks' made in response to the Pillar 3 requirements set out in the Capital Requirements Directive (CRD). Overall, the EBA welcomes efforts made by banks to improve their disclosure practices and to comply with the new requirements introduced with CRD3. Nevertheless, the report notes that there is still room for improvements in Banks' Pillar 3 disclosures, and the EBA intends to continue to press for such improvements.

Main findings

Weaknesses remain in the areas of banks disclosures of credit risk – on Internal Ratings Based approaches (IRB) and securitisation activities – and market risk. The introduction of new disclosure requirements in CRD 3 in particular in the areas of securitisation and market risk may explain some of the weaknesses identified. But the EBA has also noted that weaknesses already identified in its previous assessments remain and calls for further action.

Beyond assessing compliance with CRD disclosures requirements, the EBA has also performed an analysis of banks' Basel III implementation disclosures, in particular as regards the impact on own funds, and of the 2011 EBA Capital Exercise related disclosures. Information provided by credit institutions in these two areas were found to be of varying quality.

In all disclosure areas, the EBA has identified some best practices which credit institutions are encouraged to follow, in order to enhance the general quality of Pillar 3 information. With a view of both facilitating compliance with the requirements as well as enhancing the quality and comparability of disclosures, the EBA will this year supplement information on best practices with further explanations on the objective and content of the disclosure requirements, which banks are also encouraged to consider while preparing their Pillar 3 disclosures.

Some improvements in the quality of disclosures were noted in the area of remuneration and own funds. On the latter, credit institutions provided appropriate details of capital items and a meaningful breakdown of deductions.

With regards to the timing, formats or verification of disclosures, no significant changes have been made in banks' practices of reporting Pillar 3 information. However, information was generally published nearer to the reporting date of banks' annual accounts and annual report but the EBA will still push for publication of these reports at the same time to allow investors to have the complete set of publicly available information at once.

Next steps

Based on the findings and content of this report, the EBA, throughout 2012 and in 2013, plans to implement a strategy for enhanced transparency and to that end will i) keep on identifying best practices of public disclosures in the publications as well as the CRD requirements for which compliance has to be improved and ii) will work on these improvements, including in the area of comparability of disclosures. In this respect, the EBA will consult and engage with the industry and users where it is needed.

Background

The analysis, carried out in 2012 and covering a sample of nineteen European banks, focussed mainly on those areas where the need for improvement had already been identified in previous assessments as well as on areas where new disclosure requirements have been introduced with CRD3. The conclusions of this review will serve as essential input for defining and developing the EBA's strategy in enhancing the area of transparency.