The European Banking Authority published a consultation paper on draft regulatory technical standards under the Capital Requirements Regulation on the disclosure of encumbered and unencumbered assets. The CRR requires the EBA to develop draft RTS to specify institutions’ disclosure of balance sheet value per exposure class broken down by asset quality and the total amount of the balance sheet value that is unencumbered. The draft RTS sets out the data required to be disclosed on encumbered and unencumbered assets, the format, and the timing of the publication. The EBA has developed the draft RTS to take into account the European Systematic Risk Board recommendations, which stated that the EBA and regulators should monitor the level, evolution and types of asset encumbrance. The EBA published its first report analyzing asset encumbrance in September 2015. The report revealed that there had been no increase in levels of asset encumbrance over the past four years. The ESRB further recommended that the EBA issue guidelines and harmonized templates and definitions on transparency requirements for credit institutions on asset encumbrance.  

The EBA has defined asset encumbrance as pledging an asset or entering into any form of transaction to secure, collateralize or credit enhance any transaction form which it cannot be freely withdrawn. The draft RTS has been drafted by the EBA to provide transparent and harmonized information on asset encumbrances across EU member states based on a harmonized definition of encumbrance to enable market participants to compare the institutions in a clear and consistent manner. The draft RTS provides four disclosure templates and a box for narrative information to be completed by institutions about the importance of the encumbrance in their funding model. The EBA considers that disclosure by institutions on encumbrances is vitally important because it will enable market participants to better understand and analyze the liquidity and solvency profiles of institutions. Responses to the consultation are due by July 25, 2016. 

View the EBA press release.

View the EBA report on asset encumbrance.