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EBA Consultation on the Disclosure of Encumbered and Unencumbered Assets

Core Content

The European Banking Authority (EBA) initiated a public consultation on the disclosure of encumbered and unencumbered assets in January 2014, as part of its mandate under Article 443 of the Capital Requirements Regulation (CRR). The objective was to develop guidelines to harmonize the disclosure of asset encumbrance across the European Union (EU), supplementing existing requirements in financial statements prepared under IFRS.

Scope of Application

The guidelines apply to institutions as defined in point 3 of Article 4(1) of the CRR, including:

• Institutions subject to asset encumbrance reporting
• Institutions that must comply with disclosure requirements in Part VIII of the CRR

These guidelines are part of Pillar III of the CRR, which focuses on disclosure requirements. The scope of consolidation is defined by Title II, Chapter 2 of the CRR. The definition of encumbered assets (AE) is consistent with the EBA's Implementing Technical Standards (ITS) on asset encumbrance reporting (EBA/2013/ITS/02).

Disclosure Principles

The EBA proposed that institutions should disclose both encumbered and unencumbered assets on a consolidated basis, including standard and non-standard operations with central banks. However, certain items are excluded from disclosure:

• Assets in insurance activities that back liabilities to policy holders
• The amount of Emergency Liquidity Assistance (ELA) provided by central banks, which is reported as unencumbered
• Collateral swaps with central banks

The first disclosure is required as of 31 December 2014, with the following specifications:

• Based on median values of at least quarterly data of the reporting year
• Presented in the currency and units required by Part VIII of the CRR
• Reported annually
• With a time lag of no more than six months

Templates

The EBA provided four templates for the disclosure of encumbered and unencumbered assets:

Template A: Encumbered and Unencumbered Assets

• 010: Carrying amount of encumbered assets
• 040: Fair value of encumbered assets
• 060: Carrying amount of unencumbered assets
• 090: Fair value of unencumbered assets

Template B: Collateral Received

• 010: Fair value of encumbered collateral received or own debt securities issued
• 040: Fair value of collateral received or own debt securities issued available for encumbrance
• 070: Nominal amount of collateral received or own debt securities issued not available for encumbrance

Template C: Sources of Encumbrance

• 010: Carrying amount of selected financial liabilities
• 020: Derivatives
• 040: Deposits
• 090: Debt securities issued
• 120: Other sources of encumbrance

Template D: Narrative Information

• A box for narrative information on the importance of asset encumbrance (AE) for an institution
• Instructions are specified in Annex VII to the ITS on reporting

Overview of the Questions

The consultation included nine questions aimed at gathering feedback on the proposed disclosure framework:

1. Granularity of Debt Securities: Should the disclosure of encumbered and unencumbered assets be more granular, including information on sovereigns and covered bonds? What is the sensitivity of this information?
2. Asset Quality Indicators: Should the disclosure also include information on the quality of these assets? What would be a suitable indicator? What is the sensitivity of this information?
3. Detection of Central Bank Encumbrance: Could the disclosure in Template A help detect the level and evolution of assets encumbered with central banks, considering the use of median values and a six-month lag?
4. Relevance of Unencumbered Collateral: Should the nominal amount of collateral received or own debt issued not available for encumbrance be disclosed? What is the relevance and sensitivity of this information?
5. Granularity of Template B: Do you agree with the proposed granularity of Template B, especially given that collateral swaps with central banks are excluded? What is the sensitivity of this information?
6. Sensitivity of Sources of Encumbrance: Is the information on sources of encumbrance in Template C too sensitive to be disclosed? Should it be included in Template D as narrative information? What is the relevance and sensitivity of this information?
7. Point in Time vs. Median Values: Should the information be disclosed as of a specific point in time (e.g., 31 December 2014) instead of using median values?
8. Narrative Information in Template D: Do you agree with the proposed list of disclosures under narrative information in Template D? Should the guidelines explicitly state that ELA should not be disclosed?
9. Time Lag for Disclosure: Do you consider a time lag of no more than six months sufficient to ensure that the information does not adversely affect financial stability?

Contact Information

Comments can be submitted via the EBA web page:

• Guidelines on Disclosure of Encumbered and Unencumbered Assets

Deadline for submission: 20 March 2014

European Banking Authority

• Address: Floor 18 | Tower 42 | 25 Old Broad Street, London EC2N 1HQ, United Kingdom
• Phone: +44 (0)20 7933 9900
• Fax: +44 (0)20 7382 1771
• Email: info@eba.europa.eu
• Website: www.eba.europa.eu