Response to consultation on Guidelines on the LCR disclosure
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Concerning the “Template on qualitative information on LCR” (Annex II, paragraph 18), we refer to the reply to question 7.
Under Article 415 of Regulation (EU) No 575/2013 (CRR), monthly or quarterly reporting suffices for normal operation. According to Article 414 CRR, daily reporting of the LCR is necessary only if the minimum requirement is not met. Correspondingly, Article 4(4) of Regulation (EU) 2015/61 also refers to Article 414 CRR. Such a failure to reach the minimum level represents an extreme situation for the institution, which justifies special requirements being imposed on the institution and strict monitoring.
The disclosure requirement (Annex III Part 1 paragraph 19) therefore considerably exceeds the prudential reporting requirement under normal operation. Determination of average values on the basis of a daily calculation of the LCR would be feasible only with high input of material and human resources. On account of the large volumes of data, the run times of the computer programs would be lengthened considerably and in several institutions this would give rise to a need for new hardware. Furthermore, some manual correction work is always necessary to establish the LCR, which would then need to be undertaken daily instead of monthly.
A daily calculation of the LCR would therefore cause disproportionate additional expense. In our opinion, the requirement of average values exclusively for the purpose of disclosure cannot be justified by enhanced transparency.
In our view, the average of the values of the monthly reference days for a quarter should therefore be indicated in the disclosure report.
With respect to the calculation of the LCR, we are in favour of Option 3B. We advocate comprehensive application of the principle of proportionality and refer to the reasons set out in the reply to question 11.
In our opinion, it would be sufficient for the calculation of the LCR if the institutions have the choice to disclose the average values on the basis of daily or monthly values. As called for in the liquidity coverage ratio disclosure standards of the Basel Committee on Banking Supervision (BCBS 272, paragraph 13), the number of underlying data points could also be disclosed to allow interpretation by market participants.
For the addressees of the disclosure report, it would presumably primarily be the trend in the LCR, its numerator and its denominator that are relevant with regard to comparability with other market participants. All in all, we consider the ratio, the indication of the liquidity buffer and the net liquidity outflows, as well as the indication of the caps applied, to be sufficient for simplified disclosure. The caps applied (on assets on account of the denomination of the currency distribution and on inflows) would provide the addressees with the information that further assets/inflows are available which could not be taken into account. The other detailed information provided for in Annex II, on the other hand, would normally tend to be irrelevant for the addressees of a smaller institution.
We propose the following criteria for the delimitation of smaller institutions:
- total assets not exceeding EUR 30 billion,
- no systemic importance and
- predominantly national activity.
Question 2: As currently foreseen, the application date will be in June 2017. Do respondents find the date of application of the guidelines appropriate?
Considering the large number of additional new disclosure requirements and how little time is left, we consider the date for the first application to be very critical. We therefore advocate application from December 2017.Question 3: Do respondents consider that the transitional period is sufficiently clear?
YesQuestion 6: Do respondents have any comment on the content of the LCR disclosure template in Annex II?
Daily calculation of the LCR is viewed very critically. In this respect, we refer to the replies to questions 11 and 13.Question 7: Do respondents have any comment relative to the content of the template on qualitative information on LCR?
With regard to the currency mismatch in the LCR, we assume that asset haircuts applied in accordance with Article 8(6) of Commission Delegated Regulation (EU) 2015/61 are to be described.Question 10: Do respondents find the general instructions in Annex III sufficiently clear for the development of the disclosure template?
The “LCR disclosure template on quantitative information” (Annex II, paragraph 17) is clear.Concerning the “Template on qualitative information on LCR” (Annex II, paragraph 18), we refer to the reply to question 7.
Question 11: Do respondents consider that the methodology proposed for the LCR disclosure template is, from a practical point of view, operationally feasible meaning that the accuracy of the daily reporting observations for the calculation of the averages can be ensured? Do respondents consider that this operational feasibility could depend on the size of the credit institution or could be different in the case of solo or consolidated data?
Although it is necessary to comply with the LCR minimum requirement on a daily basis, this does not mean that the LCR also has to be calculated daily. In particular in the case of institutions with a very high LCR, a disproportionately high stock of high-quality liquid assets and relatively low volatility of the net cash outflows, compliance with the minimum requirement can be ensured without daily calculation of the LCR.Under Article 415 of Regulation (EU) No 575/2013 (CRR), monthly or quarterly reporting suffices for normal operation. According to Article 414 CRR, daily reporting of the LCR is necessary only if the minimum requirement is not met. Correspondingly, Article 4(4) of Regulation (EU) 2015/61 also refers to Article 414 CRR. Such a failure to reach the minimum level represents an extreme situation for the institution, which justifies special requirements being imposed on the institution and strict monitoring.
The disclosure requirement (Annex III Part 1 paragraph 19) therefore considerably exceeds the prudential reporting requirement under normal operation. Determination of average values on the basis of a daily calculation of the LCR would be feasible only with high input of material and human resources. On account of the large volumes of data, the run times of the computer programs would be lengthened considerably and in several institutions this would give rise to a need for new hardware. Furthermore, some manual correction work is always necessary to establish the LCR, which would then need to be undertaken daily instead of monthly.
A daily calculation of the LCR would therefore cause disproportionate additional expense. In our opinion, the requirement of average values exclusively for the purpose of disclosure cannot be justified by enhanced transparency.
In our view, the average of the values of the monthly reference days for a quarter should therefore be indicated in the disclosure report.
Question 12: Do respondents find the specific instructions in Annex III sufficiently clear for the development of the LCR disclosure template and the template on qualitative information on LCR in Annex II?
No, in this respect we refer to the reply to question 7.Question 13: In the elaboration of this CP, the EBA has considered several policy options under three main areas: a proportionality approach in the scope of application, items for a higher disclosure frequency and methodology for the calculation of the disclosures. Do respondents have any particular view on the assessment conducted on these policy options?
With respect to the scope of application, we are in favour of Option 1A. We refer to the reasons and proposals set out in the reply to question 14.With respect to the calculation of the LCR, we are in favour of Option 3B. We advocate comprehensive application of the principle of proportionality and refer to the reasons set out in the reply to question 11.
In our opinion, it would be sufficient for the calculation of the LCR if the institutions have the choice to disclose the average values on the basis of daily or monthly values. As called for in the liquidity coverage ratio disclosure standards of the Basel Committee on Banking Supervision (BCBS 272, paragraph 13), the number of underlying data points could also be disclosed to allow interpretation by market participants.
Question 14: Do respondents think that the opportunity of having a simplified disclosure template for smaller credit institutions should be assessed? This simplified LCR disclosure template could comprise for example the ratio itself, the numerator and the denominator as key ratios and figures of the LCR, in the sense of Article 435 (1) (f) CRR. What arguments could respondents provide to justify that the LCR ratio itself, its numerator and its denominator are the only key ratios and figures of the LCR which are required to be disclosed by smaller credit institutions? More generally please provide any argument in favor or against a simplified template, and if you believe a simplified template for LCR disclosures is relevant, please indicate which type of information you would like to have disclosed in that template. What specific criteria would respondents suggest to identify those smaller institutions for which a simplified disclosure template could potentially be disclosed?
The EFBS is emphatically in favour of simplified disclosure requirements – compared to Annex II – for smaller institutions. In our view, both less quantitative and less qualitative information should be required from these institutions so as to bring about a tangible reduction in the work required for disclosure.For the addressees of the disclosure report, it would presumably primarily be the trend in the LCR, its numerator and its denominator that are relevant with regard to comparability with other market participants. All in all, we consider the ratio, the indication of the liquidity buffer and the net liquidity outflows, as well as the indication of the caps applied, to be sufficient for simplified disclosure. The caps applied (on assets on account of the denomination of the currency distribution and on inflows) would provide the addressees with the information that further assets/inflows are available which could not be taken into account. The other detailed information provided for in Annex II, on the other hand, would normally tend to be irrelevant for the addressees of a smaller institution.
We propose the following criteria for the delimitation of smaller institutions:
- total assets not exceeding EUR 30 billion,
- no systemic importance and
- predominantly national activity.