Trading Book

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Search Type keyword or phrase: Do you agree trading book banking book available for sale the scope of the discussion paper for the technical advice? Are there other elements that trading book banking book available for sale be covered? If yes, please state why.

General comment on the discussion paper: We regret that the EBA does not regard the possibility of maintaining the status trading book banking book available for sale of the CRR — to do without prudential trading book banking book available for sale — as a possible course of action Para trading book banking book available for sale In our opinion, comprehensive advice also includes an assessment of the status quo.

In particular, it is correct "to not make adjustments to take account of unrealised gains or losses shown on the balance sheet when calculating the common equity tier 1" footnote 10 of Basel III. It is certainly also correct "to keep an eye on the treatment of unrealised gains and, doing so, take account of the development of the accounting standards" ibidem.

However, new proposals of the Basel Committee regarding this are not available at the moment. Although developments regarding international accounting which may justify two-sided prudential filters, such as the delay and revision of the IFRS 9 which had been expected trading book banking book available for sale come into effect for at the time Basel III was published or considerations regarding leasing accounting, have become visible since the publication of Basel III in Decemberthe European legislator has created reasonable transitional regulations Art.

Should a prudential filter for unrealised gains actually be introduced in the EU, this would mean substantial competitive disadvantages to the European banks. It cannot be understood why the European legislator would like to deviate from the Basel framework in this respect. To ensure a level playing field, the papers of the Basel Committee should be waited for and European solo efforts should be avoided.

We, therefore, urgently recommend to keep without change the provision of Article 35 CRR which enables full consideration of unrealised gains in the common equity tier 1, and in compliance with the Basel framework, to not introduce an asymmetrical prudential filter for unrealised gains. In particular, the status quo needs to be maintained, i.

Otherwise, the result would be completely distorted representations e. It would be difficult to communicate them to investors. In so far, we also ask to clarify that a in accordance with Art. The only exception is "investment property". However, the formulation of the German text of the CRR regarding this is very difficult to understand and speaks of " 1 In deviation from Article 35, during the period from 1 January to 31 Decemberinstitutions shall include in the calculation of their CET1 items only the applicable percentages of unrealised gains and losses related to assets or liabilities measured at fair value, and reported on the balance sheet, excluding the items specified in Article 33 and all other unrealised gains with the exception of those from investment property which are shown in the profit and loss account".

Should the legislator, nevertheless, decide to introduce filters for unrealised gains which are shown in the OCI category or revaluation reservethey would necessarily have to be accompanied by appropriate filters for unrealised losses to prevent an excessively negative representation of an institution's situation.

However, the treatment of unrealised losses is not covered by the EBA's work assignment according to Art. We do not share these doubts regarding the balance sheet figures. Rather, we are convinced that an institution's balance sheet presents its position truly and comprehensively. This is not only confirmed on a regular basis by the certified public accountant's audit report. Rather, the IFRS also provide for a determination of the fair value trading book banking book available for sale the basis of the so-called exit price.

This is the price that would be achieved at the valuation date if an asset were sold in the context of a usual transaction between market participants. Hence, the fair value already implies an actual ability to sell the underlying transaction. Moreover, the determination of the fair value is guided by a valuation hierarchy according to which the use of observable market prices or input factors is to be maximised.

Trading book banking book available for sale to be taken into account in this regard is the volume or extent of the activity on the markets where valuation parameters are observed. In this way, liquidity deductions are already made in the context of the valuation if an active market is non present.

An arbitrary procedure for the trading book banking book available for sale of the fair value is to the greatest extent ruled out by the extensive regulations that exist. Also for the reasons stated above, we see no need to introduce a prudential filter for unrealised gains. The goals pursued by the present discussion paper are sufficiently provided for already by other regulations. This is true in particular with a view to the planned regulations regarding the prudent valuation of fair value items.

Should a prudential filter for unrealised gains be introduced in addition to the prudent valuation, this would result in profound multiple burdens on the institutions in the form of higher deduction items for identical or similar banking supervision issues. Furthermore, the frequently observed fundamental adjustment of the balance sheet figures for supervision purposes to a considerable extent promotes the non-transparency of the figures as no internal, and much less external, persons can understand the connection between the balance sheet figures and the supervisory figures.

Although reconciliations as proposed in this respect by the EBA in marg. In our opinion, the prudential concerns stated in chapter 4. However, this issue concerns all items measured at fair value and hence the effects not only on existing unrealised gains but also on potentially unrealised losses.

These issues may not be immediately available, may disappear, concerns on reliability, lack of an active market, ability to sell are sufficiently being taken account of by Art.

We, therefore, definitely reject a further regulation which single-sidedly refers to unrealised gains also described in this way by the EBA in marg. In its discussion paper, the EBA again and again sets forth itself that linking to unrealised gains was the wrong starting point and mentions the risk that securities might be sold for the purpose of realisation alone and then possibly be bought back promptly.

In the end, however, the institution's risk exposure would not have changed. Until these objections seen by the EBA itself have been solved, it is not appropriate to make respective deductions.

The risks from economically open risk positions in respect of which market value changes result in single-sided losses are adequately covered by the relevant provisions regarding capital requirements or, in the case of interest rate risks, sufficiently provided for in the banking book by means of pillar II. Finally, the precise interaction between the provisions regarding prudent valuation and the treatment of unrealised gains remains open. For example, is a prudential filter applied to the prudent value?

In addition to expensive and intransparent set-off methods we primarily fear double capital deductions. In so far, we would wish to have a coordinated approach of the two regulatory precaution concepts of prudent valuation and the treatment of unrealised gains.

In the context of the examination of prudential filters for unrealised gains, we believe it to be necessary to observe the necessary overall bank control. In our opinion, the prudence principle is sufficiently guaranteed if exclusively a prudent valuation is made for hedging derivatives for basic trading book transactions which are included in the hedge accounting in accordance with IAS The EBA should clarify trading book banking book available for sale. Prior to the possible introduction of a prudential filter, an impact study urgently needs to be conducted trading book banking book available for sale enable an assessment of the burdens put on the credit institutions.

At the same time, the institutions should be granted reasonable transitional periods during which they can gradually grow into the new deduction regulations. Extent or starting point of the concrete proposals: The assumptions regarding the accounting of financial instruments and their delimitation from the regulatory trading and banking book made in the discussion paper are represented incorrectly.

This in particular applies to derivatives which, contrary to the EBA's statements, are for the main part assigned to the banking book. The EBA also ignores the fact that the institutions control their transactions at the portfolio level.

Should a filter for unrealised gains be introduced, it has to be ensured at least that unrealised gains may be set off against unrealised losses at the highest portfolio level. A set-off of unrealised gains and losses should be possible at the group level but at least at the institution level. Otherwise, this would have serious consequences for the institutions' equity capital position.

Furthermore, at best the unrealised gains recorded in the OCI should be looked at. As the EBA annotates itself marg. In so far, it is difficult to make a differentiation in the profit and loss account. This in particular applies to the derivatives listed in the trading book. Otherwise, an institution's position would be represented distortedly.

For example, in particular investors would be unable trading book banking book available for sale understand why distributions e. Do you agree with the description of the different criteria provided on this section in order to assess trading book banking book available for sale possible treatments of unrealised gains? If not, please state why. Do you think there are other criteria that should be considered?

The criteria used for the analysis of the possible treatments of unrealised gains are basically comprehensible. Due to the existing interdependencies with other regulations, it is from our point of view important in particular to take account of the interactions with the prudential capital resources requirements and the capital deduction for the prudent valuation of items measured at fair value.

However, the intention to realise gains marg. Especially in a restructuring case, the sale of items, e. Moreover, a mixed business model is often applied to fixed-interest securities. In addition to receiving interest payments, these securities are basically available if additional liquid funds need to be provided.

Therefore, these securities are liquid and usually can be sold at any time. We cannot understand the concern or the statement that unrealised gains "may disappear" inter alia marg. The main drivers of changes in the value of fair value items in the banking book are changed assessments of an item's probability to become bad debt or be lost and a changed level of the expected yield on the market interest rate level.

Both risks are already covered by capital requirements interest rate risk in pillar II and in discussion in pillar I. In so far, the assessment in column 3, line 1, in marg. The argument of column 1 in line 4 values above the nominal amount melt away as the maturity date approaches is likewise not reasonable.

Higher market values than the nominal value result from general interest rate level, interest rate of the bond and risk of the bond. Reductions of the market value until the maturity date correspond to received cash interest paid on the bond.

In so far, the unrealised gains are, to the contrary, gradually realised as time passes. Finally, it is stated in the discussion paper marg.

However, this applies in equal measure to the unrealised losses. Moreover, non-consideration of the unrealised gains may even e. In our opinion, a prudential filter would hence not contribute to stabilising the banking sector but rather increase uncertainty.

Do you agree with the proposed approach based on the prudential classification distinction between the trading and banking book to analyse the different policy options? Do you envisage any operational issue if the prudential approach is followed? In our opinion, a restriction of the analyses to one point of view the banking supervisory view is not sufficient. This leaves a number of problem areas out of consideration because in general the application of asymmetrical prudential filters causes substantial problems in respect of both their application to balance sheet categories 1 and their application to prudential categories 2: These derivatives are used primarily for economic hedge relationships which are not intended for the hedge accounting within the meaning of IAS 39 because they do not meet the strict requirements of IAS 39 and hence cannot be included in the hedge accounting.

According to IAS 39, they have to be assigned to the "held for trading" category as stand-alone derivatives although they have an economic hedge relationship because according to IFRS all derivatives banking and trading book are classified as held for trading.

Furthermore, embedded derivatives that must be separated consisting of hybrid financial instruments are always classified as held for trading. In the case of a non-trading book institution, these derivatives typically account for the major part of trading book banking book available for sale held for trading category.

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