Response to consultation on guidelines on disclosure of encumbered and unencumbered assets
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The preparation of the disclosures would become too time and resource consuming, especially during the initial period where financial institutions need also to tackle new reporting requirements in relation to Basel III reporting requirements such as the Leverage Ratio and also FinRep, whilst working extensively on the AQR, the EBA Stress Test and various national quality review initiatives.
ESBG also questions the information-value to a user of the disclosures in obtaining information regarding collateral which cannot be used for encumbrance since this collateral cannot be realised in case of an entity’s insolvency.
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.
ESBG cannot support a further breakdown of categories in template A as the underlying data re-quirements are already extremely complex involving data managed in different divisions such as Risk, Accounting, ALM, Liquidity etc. Additionally, as mentioned above the information provided is extremely sensitive and more granular disclosures may have extensive unintended negative repercussions on reporting entities. ESBG also do not believe that there is any obvious added value of providing additional information.The preparation of the disclosures would become too time and resource consuming, especially during the initial period where financial institutions need also to tackle new reporting requirements in relation to Basel III reporting requirements such as the Leverage Ratio and also FinRep, whilst working extensively on the AQR, the EBA Stress Test and various national quality review initiatives.
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.
It is the understanding of ESBG that no uniformly defined quality indicator exists currently. Thus there is a risk of including information on the quality of the assets as users of the information would not be able to interpret the data disclosed by different entities in a comparable manner. We therefore do not believe that it would be appropriate to include this type of information in the disclosures. Should a uniformly defined quality indicator be developed in the future then information on the quality could be included if demanded by the users of the information.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)?
ESBG believes that for financial institutions that do not have a large repo business it may be possible to extract this information by considering 040 together with the delta between line 010 and 040 in conjunction with C 040. This could result in an adverse effect on the financial institution compared to other financial institutions.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.
ESBG is concerned that mandatory disclosures of this information could result in misinterpretations of the data. For collateral received where encumbrance is not an option due to technical reasons a user of the disclosures may incorrectly draw the conclusion that the collateral received is classified as junk.ESBG also questions the information-value to a user of the disclosures in obtaining information regarding collateral which cannot be used for encumbrance since this collateral cannot be realised in case of an entity’s insolvency.