Back in May 2013, the EBA outlined a list of liquidity data in addition to that required under the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) that it wanted to collect for monitoring purposes (here). The list included information related to the entity’s reliance on maturity transformation, concentration of funding by product and counterparty, prices for various lengths of funding and rollover of funding. However the consultation responses released on 20 August not that six new reports on a bi-monthly basis would mean over 1,000 additional reports for an institution made up of ten entities, and almost 15,000 for an institution of a hundred. This additional information will place a much greater burden on banks for little foreseeable value-add.
Here are the five top issues with the proposals as currently set-out:
- Quantity and applicability: The proposals constitute an exponential increase in the number of reports. The EBA’s plans will add six new liquidity reports to the two already in existence, the LCR and the NSFR reports. What’s more, these reports will apply at the entity level, meaning that large institutions are potentially faced with thousands of new reports to compile and submit. Contrast this with Singapore, who recently said they would consider allowing banks to report at the aggregated national level on an institution-by-institution basis (here).
- Frequency: These new reports are expected to be submitted every 30 days to begin with, but increasing to every 15 days after that, in line with the existing LCR reports. The issue here is that where the data necessary to fill out the Basel III reports mainly comes from Treasury and the middle-office, much of the data required for the additional liquidity monitoring reports will have to be sourced from the front-office, and so require significant aggregation within larger organisations.
- Duplicative reporting: Though the EBA states that ‘the definitions for additional reporting items have been aligned, to the greatest extent possible’ to avoid duplicative reporting, respondents have identified areas where data is already available to regulators. For instance, the maturity ladder report seems to be aimed at providing regulators with a picture of banks internal stress models, which are already made transparent to regulators via other channels. Similarly, much of the concentration of funding by product type report is already reported in the LCR.
- Standards: Linked to this is the problem of data standards; variations in definitions and the ranges of data fields will significantly increase the burden of implementing new reporting requirements. For instance, time to maturity is split into thirteen buckets in the new reports, whereas there are only nine buckets in the LCR/NSFR. This will require detailed analysis between the two sets of rules and possibly the collection of more granular data.
- Lack of perceivable benefit: The question remains as to the benefit of collecting this new information over and above other liquidity reporting requirements. Other than the maturity ladder and the concentration of funding, the BCBS has not given a mandate to the EBA to monitor additional metrics, and so the rules cannot be said to be a response to international rulemaking, nor do regulators have the resources to pay full attention to such huge amounts of data.
All this demonstrates that the regulators have a significant amount of thinking to do before these plans are finalised. In particular, it is very late in the game to be introducing new definitions for existing data fields, considering that firms have to begin liquidity ratio reporting from January 2013 and will be well on their way to implementation. Ultimately alignment between requirements will streamline reporting and increase the comparability and the utility of data provided to regulators.