Overall, ESBG supports a more flexible, conditional and economically-sound calibration of prudent valuation models, in order to avoid significant increases in operational costs for credit institutions and ensure a proper assessment of risks. ESBG moreover advises against the use of mandatory adjustments and reclassification of equities and other portfolio positions, favouring the development of other more robust approaches for this purpose.

In terms of calculations and report, ESBG understands that a monthly frequency for fair values/ additional valuation adjustments (AVA) calculations and reporting is technically feasible and can be duly implemented by a number of credit institutions. However, this will likely increase the operational efforts of all parties, including internal departments delivering input to the calculation. Moreover, the EBA’s proposed amendments of technical thresholds, which trigger significant reclassifications of portfolio volumes, can increase additional reporting and validation requirements and lead to a disadvantageous treatment of quotes and equities across regional markets. Lastly, the potential limitation of market data to one month prior to the moment of calculation, as suggested by the Authority, can hinder the potential to use longer time series as part of calculation inputs, a more reliable source of market information.
Furthermore, concerning the fallback approach, ESBG generally supports the amendments suggested by the EBA. However, the prescription of a mandatory approach as regards unlisted shares ignores the peculiarities of unlisted companies. Therefore, ESBG supports a specific treatment according to each share category. In this vein, ESBG would prefer a more conditional application of this approach, in order to allow for the development of a robust expert-based approach, which would allow for a more appropriate evaluation of a specific portfolio positions.
Lastly, ESBG has requested clarification to the requirements for the calculation of AVAs under the core approach, particularly as regards the policy objectives of the EBA amendments, the definition of “pricing models”, the mandatory quarterly calibration of model parameters and the measurement of risks, further to Profit and Loss data.