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Comprehensive Quantitative Impact Study FAQs
Categories
- General Process Issues/Data Availability/Definitions
- Liquidity
- Trading Book
- Definition of Capital
- Leverage Ratio
General Process Issues/Data Availability/Definitions
Should banks differentiate in the workbook between "data not available" and "data not applicable"?
QIS instructions do not ask banks to distinguish between data not available and data not applicable. In both cases, cells should be left blank.
How should firms handle situations where historical data is not available, or where provision of such data would require a significant build out of systems (e.g., historical bid/ask spreads, CDS spread data, price level history for specific securities, debt maturities of sponsored structured financing vehicles, etc.)?
For QIS, experience during the recent crisis or prior country specific event can be used if historical data is not readily available.
Is there a definition of "sponsored" structured financing vehicles?
Sponsored structured financing vehicles are those structures "…where documentation associated with the structure requires, contractually, for the bank (if the original transferor of the assets) to provide liquidity through repurchase."
Is there a more comprehensive definition of "financial entities" and/or guidance that could support identification of other financial entities?
U.S. institutions should refer to U.S. Capital Adequacy Guidelines (12 CFR part 225, appendix A, II.B.2.a), which discuss the regulatory capital treatment of investments in unconsolidated banking or finance subsidiaries. For additional information, please see Footnote 19 of the guidelines.
Liquidity
Where should Agency debentures and Agency MBS be reported in the "Liquid Assets" category? Is there any haircut?
Unsecured debt (notes and bonds) and MBS issued or guaranteed by Freddie Mac, Fannie Mae, and FHLB (or similar national agencies that receive a 20 percent risk weight), should be reported in row 30 and 31, respectively, in the LCR regardless of maturity. When the instruments have a remaining maturity of more than one year, they should also be included in rows 227 and 288, respectively, in the NSFR.
Unsecured debt issued by or MBS guaranteed by GNMA (or similar entities that receive a 0 percent risk weight) should be reported in row 15 of the LCR. When the instruments have a remaining maturity of more than one year, they should also be included in row 213 of the NSFR.
CMOs directly issued by the GSEs (or other entities that receive a 20 percent risk weight) should be reported in row 29 of the LCR. When the instruments have a remaining maturity of more than one year, they should also be included in row 226 of the NSFR.
The QIS Liquidity Template requires disclosure of balances before haircuts.
Is the data requested in row 210 of the Liquidity Worksheet ("Material ‘Matched Book' Repurchase and Securities Lending Transactions") limited to on-balance-sheet business, or does it include off-balance sheet information also? Should FICC repos and off-balance sheet securities finance business be included?
All repo and securities lending transactions should be disclosed on this line. Row 210 is not limited to only on-balance sheet business. Banks should keep in mind that the NSFR standard is not an accounting ratio. It is structured to ensure that investment banking inventories, off-balance sheet exposures, securitization pipelines, and other assets and activities are funded with at least a minimum amount of stable liabilities in relation to their liquidity risk profiles.
Does the provision of a "bank's internal estimates of average observed market haircuts as of the calendar date of the year stated for which the bank's own transactions secured by collateral" relate to management's estimate for the consolidated entity, notwithstanding that such transactions most likely occurred in subsidiaries of the consolidated entity? 3.4.1 -- LCR (columns D & E)
Even though this information is reported on the consolidated entity column, the observation of haircuts should be based on management's assessment of the experience of the street facing subsidiaries.
Does "own debt maturing in < or = 30 days" relate solely to debt issued to third parties? 3.4.2 (row 57)
Yes. Intragroup lending would be reflected in row 164, "Intragroup Cash Outflows – Maturing <= 1 Month".
What if the requirement to provide an estimate of additional collateral to be posted in the event of a 3-notch downgrade requires estimation of such amounts for entities that themselves are not rated and for which data must be supplied? 3.4.2 (row 83)
Banks should provide this data with reasonable effort and best-efforts estimation.
There is no definition of how to calculate potential liquidity outflows for derivatives over the next 30 days. Should this be derived from forward valuations of derivatives or from simulated values under stressed market scenarios? 3.4.2 (row 85)
Given that LCR is a stress scenario, it would be best to provide simulated values under stressed market scenarios.
Do the guarantees referred to in 3.4.2 (row 106) cover only those provided to third parties?
Banks should include all guarantees on this line, including intragroup guarantees.
Should the population of Financial Corporation deposits be identified for NSFR purposes on the QIS template? Should the data be included in row 177 ("All Other Liabilities and Equity Categories")?
Financial Corporate Deposits are disclosed in "Other Unsecured Wholesale Funding Maturing in Less Than 1 Year" (row 187 of the final template). Banks should complete the template per the instruction booklet, and should free feel to submit additional data.
Given the stringent definition of eligible assets or liabilities in the NSFR calculation, the balances in "All Other" can become material in relation to overall balance sheet size. We suggest optional disclosure to identify the largest components of "All Other" (this could highlight an asset class which may require specific focus).
Banks should fill out the QIS template according to the instructions provided without modifying the template. Banks should feel free to submit additional supporting data and other explanations for their submissions.
The definition of "unencumbered" states that "assets that are pledged to a central bank but are not utilized may be considered unencumbered. Does this apply to the Discount Window? Would loans pledged at the FHLB qualify? How would they be categorized in the spreadsheet? 27 3.4.1 Liquid Assets, Liquidity Coverage Ratio (LCR) (panel A)
For U.S. participants, "…pledged to a central bank" refers to the Fed's Discount Window. However, such assets should be identified and disclosed according to the appropriate Narrow Buffer Assets and/or Additional Assets definition. The QIS template does not account for loans pledged at the FHLB. These assets are considered encumbered and, therefore, should not be disclosed in the "Liquid Assets" section (panel A).
With regard to section A1 ("Narrow Buffer Assets," row 10 -- "Central Bank Reserves"), what funds/ securities/loans qualify as central bank reserves? Should a Federal Reserve requirement be entered on this row?
Central bank reserves disclosed in row 10 would be cash deposited at central Banks in excess of "minimum" reserve requirements.
What is meant by "narrow buffer assets for which a repo market exists" (row 11)?
The intention is for banks to consider the utilizable market capacity to monetize these assets.
Should there be disclosure of "Additional Assets" (section A2) such as Convertible Bonds, Residential MBS, Commercial MBS, Asset Backed Securities, Private Label CMO's, and Commercial Paper investments in other corporations?
The QIS template should be filled out according to instructions without modification (i.e., adding or removing rows). Banks should feel free to submit additional data points on separate pages.
Should the analysis on non-financial corporate bonds be done on a bond-by-bond basis?
Analysis should be done on a bond-by-bond basis.
With regard to cash and high-quality liquid assets as defined in panel A1 (page 35, row 88), can we confirm that netting arrangements are to be applied in determining outstanding collateral?
Legal netting requirements can be applied.
With regard to "Undrawn Committed Liquidity Facilities to Non-Financial Corporate" (page 35, row 97), is this where liquidity facilities supporting Tender Option Bonds (TOBs) and Variable Rate Demand Bonds (VRDBs) should be listed?
Liquidity facilities supporting TOBs and VRDBs should be disclosed here.
With regard to "Other Trade Finance Instruments" (page 37, row 108), can a listing of other trade instruments be provided?
There is no official listing; this row is intended to capture anything other than guarantees and letters of credit. Additional examples would include factoring, buyer's credit, etc.
With regard to outstanding own debt securities with maturities beyond thirty days for banks with an affiliated broker dealer (page 37, row 110), can you provide additional clarity on what is meant?
Banks should disclose outstanding debt issued by all related entities with maturities beyond thirty days. This row is intended to capture potential buyback risk, as the broker/dealer entity often acts as the market maker and/or dealer.
With regard to "Other Contingent Funding Obligations" (page 48, row 248), there is a disclosure for "potential request of debt repurchases or that of related conduits, securities investment vehicles and other such financing facilities." Should estimates be based on a business as usual or stress scenario approach?
Estimates should be based on a stress scenario approach.
What data should be captured in row 198 ("Secured Lending Exposure")? Should trade date receivables, other receivables from broker-dealers, and securities loaned be included?
"Secured loans" does not refer to short-term securities financing transactions but to other types of loans such as receivables financing or asset origination financing of securitizations. This row is intended to collect data on secured lending exposures where the monetization of collateral may not be assured.
Where should "physical commodities" (such as oil) be listed?
Physical commodities such as oil do not qualify as high-quality, liquidity assets for purposes of the LCR calculation. For NSFR calculation, they would be included in row 250 ("Other Illiquid Assets"). If such assets are traded, they should be reported in row 248 ("All Other Trading Securities or Other Instruments That Are Fair-Value Based on Inferences from Observed Market Prices").
How is TLGP treated?
Since debt issued under the TLGP is backed by the full faith and credit of the United States pursuant to section 15(d) of the Federal Deposit Insurance Act, it should be reported in row 13. When reporting TLGP debt, banks should make sure that these debt securities are within the guarantee period. "The program covers all newly issued senior unsecured debt issued by eligible entities after Oct. 13, 2008, and before July 1, 2009. For banks that do not opt out of the program, the new debt issued before July 2009 will be protected to maturity or June 30, 2012, whichever is earlier. In no event would the guarantee extend beyond June 30, 2012." Please clearly identify the amount of such holdings in a document separate from the template.
Where should assets under the category of "Securities Borrowed" for equities be listed? Line 209 mentions "Securities Borrowed or Purchased under Agreements to Resell with Remaining Maturity < 1 Year." Is this the right line?
Line 209 is the correct row.
With regard to potential liquidity exposure (page 35, row 85), how should market moves be estimated in order to generate a mark-to-market on the collateral? Is there a particular 39-day scenario that should be modeled?
Banks should consider their own experience during the recent financial crisis. Additional information on stress scenarios related to the LCR can be found in paragraph 22; information on stress scenarios related to the NSFR can be found in paragraph 83.
Trading Book
Panel A of the Trading Book Worksheet requires disclosure of the amount of equity exposures subject to a capital charge lower than 8 percent. Should the exposure amount include all equity exposures or only those equity exposures listed in the Trading Book?
The exposure amount should include only those equity positions that are booked in the trading account.
Regarding securitization exposure in the Trading Book, does such exposure include trading account positions in mortgage pass-through securities issued by GNMA, FNMA, and FHLMC?
Securitization exposure in the Trading Book should not include positions in mortgage pass-through securities issued by GNMA, FNMA, or FHLMC.
What is the distinction between "credit" and "liquidity" facilities, and how does it apply in the case of commercial paper (CP) backstop lines?
A definition of liquidity facilities is provided on page 17, paragraph 66(c) of the Consultative Proposal. CP backstop lines are intended to be included as "liquidity facilities."
Definition of Capital
Does the data requested for Tables 1–5 apply only to redeemable non-controlling (minority) interests, or also to non-redeemable, non-controlling (minority) interest?
For purposes of QIS, the minority interest information requested does not distinguish between redeemable and non-redeemable, non-controlling (minority) interests. Both types of minority interest that meet the relevant criteria are requested.
On the General Information tab, the item on discretionary compensation payments notes that they should be included only if they result in a reduction of Tier 1 capital.
QIS asks firms to enter the total amount of discretionary staff bonus payments and other discretionary staff compensation payments made from 1999 to 2009, and notes that firms should include payments only "if they result in a reduction of Tier 1 capital." Discretionary staff bonus and other compensation payments should be understood to mean all variable payments which the firm is not contractually obliged to pay. Firms should only include such payments if they result in a reduction of Tier 1 capital, or if an increase in Tier 1 capital would have resulted had they not been made.
For example, under U.S. Generally Accepted Accounting Principles (GAAP) a firm is required to classify as a liability certain shares that give employees the right to require their employer to repurchase at fair value those shares for their cash equivalent. Such discretionary compensation payments result in a reduction of GAAP equity and, consequently, Tier 1 capital, and should be included in row 75 of the General Information tab. Similarly, discretionary payments made out of retained net income would have resulted in an increase in Tier 1 capital had they not been made and therefore should also be included in row 75.
By contrast, compensation paid to employees in the form of newly issued shares may, under certain circumstances, result in an increase in the number of outstanding shares with no change in GAAP equity and, consequently, no change in Tier 1 capital. These amounts should not be included in row 75.
What instruments should be included on the DefCapTier1 tab? Should hybrids be included?
The DefCapTier1 tab asks firms to include data on all Tier 1 capital instruments that currently are recognized in regulatory capital. Respondents should include "hybrids" that qualify for Tier 1 capital when responding to this item.
Leverage Ratio
With regard to panel A (row 10), on balance sheet items, should unused liquidity commitments be included?
No, panel A is only for on-balance sheet items.
Line 37 of the Leverage Ratio tab asks firms to provide the regulatory potential exposure (current exposure method; applying Basel II netting rules). Page 24 of the instructions for these items includes a footnote that states "banks should always apply the netting rules as defined in the Basel II framework, irrespective of their actual approach to credit risk." Should banks provide potential exposure as currently calculated, or as calculated if Basel II netting rules were applied?
For historical data, please provide the regulatory potential exposure as calculated at that time. For the most current/recent data requests, please provide potential exposure as calculated under Basel II netting rules if possible. If you do not have a sufficient degree of confidence about the Basel II calculation, please provide the potential exposure measure as you currently calculate it and supplement this with a best efforts qualitative sense of what the difference between the two numbers may be and the main reasons behind this difference.
