My contribution to the EBA Guidelines on disclosure requirements consultation

The European Banking Authority (EBA) launched a consultation on a set of Guidelines on regulatory disclosure requirements following an update of the Pillar 3 requirements by the Basel Committee in January 2015. These Guidelines are part of the EBA’s work to improve and enhance the consistency and comparability of institutions’ disclosures and aim to ensure market discipline.

The consultation runs until 29 September 2016.

This is my contribution, I answered only selected questions:

Question 9: Do you agree with the proposed scope of application of the Guidelines?

The scope of the Guidelines should be wide. Scope limitations deprive some depositors and investors from information to monitor banks. Limits to G-SII or O-SII may make sense from the position of the disclosing banks, and for reasons of proportionality. However, these banks are generally well-monitored by supervisors, press, and media. Smaller banks are followed less intensively, and the Guidelines should make a solid effort to make up for this potential gap in monitoring.

The Guidelines should limit options and discretions regarding scope inclusion. The Guidelines allow competent authorities (CAs) to require institutions to provide more frequent disclosures. However, an investor or depositor will not always know why a CA in one country chooses to use this discretion, and why a CA in another country not. Consequently, investors and depositors may start worrying why some banks in some countries do not provide more frequent disclosures, whereas other, comparable, banks in other countries do provide more frequent disclosures. The banks in countries where the CA does not require more frequent disclosures may be less trusted as a result, which may have repercussions for funding costs and financial stability.

Options and discretions regarding scope inclusion should be banned also because banks and CAs may self-select and choose to disclose more frequently only in good times. As a result, the general public will be fooled into thinking that all is well.

Quarterly disclosures should the norm: the frequency of the semi-annual disclosures should be changed to quarterly. For example, banks report full information on Own Funds on a quarterly basis to the CA. There is no reason to not disclose this information on a quarterly basis to a wider public.

One advantage of more uniform disclosure requirements is that is makes it a lot easier to analyse and compare banks for research purposes. It is nuisance if there are gaps in the data, or if the disclosure frequency of items varies without knowing precisely why.

Another advantage of compulsory quarterly disclosures is that banks with different year-ends are easier to compare against their peers with December year-ends.

Question 10: In case you support the development of key risk metric template(s) that would apply to all institutions, which area of risks and metrics would you like to be covered in such template(s)?

For monitoring purposes as many banks as possible should present uniform, raw, data that is closely aligned with the reporting received by the supervisor (COREP, FINREP). Risk metric templates make assumptions of user needs, and one never knows if these assumptions are right. Users should be, as much as possible, in the same position as the supervisor.

Question 11: Do you regard making available quantitative disclosures in an editable format as feasible and useful?

Yes. However, I would recommend the EBA to follow the U.S., where data of commercial banks and bank holding companies (BHCs) are publicly available in a single standard format. In addition, the history of U.S. bank data available to the public is long: quarterly BHC data dates back to 1986, call reports date back to 1976. The U.S. system allows me to collect relevant, quarterly, data for all BHCs in less than five minutes.

The Guidelines explore the idea of publishing Excel files. This idea has merits for sure, but it is impractical in that it will likely lead banks to post the data in non-uniform ways on dispersed locations. Users will have to visit bank web-sites separately to gather the information they need, then merge the data into a format that enables analysis. Even if a user works very hard to gather all spreadsheets, she may not be able to retrieve data of all banks. To make meaningful comparisons, and for meaningful analyses, one needs complete, standardised, frequent data. The data should be in a format that allows analysis without the use of MS Office: not all users have access to Microsoft Office. Moreover, a growing number of users have access to freely available statistical software (R, Python). Therefore, standard csv format with variables in columns and bank and time identifiers in rows will suffice.

This is an opportunity for the EBA/EC: it could require banks to submit the relevant data to a central repository, or it could require Members States to post selected data from existing sources (e.g. FINREP or COREP) to this repository.

Last but not least, it is not clear what happens if a bank disappears. Data of banks that aren’t there anymore should be kept available.