The rule in plain words
Trading book cannot be more than total core approach.
EBA checks it for seven columns: market price uncertainty, market price uncertainty calculated using the expert based approach, close-out costs, close-out costs calculated using the expert based approach, model risk, model risk calculated using the expert based approach and total AVA. That makes seven checks. A failure names the one that failed.
How the Line4 Check report words itShowHide
The first of its checks, word for word as the report shows it when it fails. The others read the same, with their own column, row or sheet.
Of which: calculated using the expert based approach: Of which: trading book <= Total core approach
What to do if your filing fails it
- 01Open the template below and find the cells the rule reads.
- 02Compare the values in your file. If the first is bigger than it may be, one of them is wrong: check both before you change either.
- 03EBA allows a small rounding difference, worked out from the decimals each value is reported with.
- 04It runs only when your filing indicators mark C 32.02 as reported.
- 05This is a warning. It does not stop the filing on its own, but your authority may ask you to explain it.
The cells it reads
Prudent valuation: core approach – pre and post diversification (C 32.02.a)
Rows
- 0010Total core approach
- 0020Of which: trading book
Columns
- 0010Market price uncertainty
- 0020Of which: calculated using the expert based approach
- 0030Close-out costs
- 0040Of which: calculated using the expert based approach
- 0050Model risk
- 0060Of which: calculated using the expert based approach
- 0110Total AVA
A worked example
The first of its checks, with simple numbers.
Total core approach must then be at least 1,200.
A file that reports 1,200 passes. One that reports 1,100 fails, by 100.
The numbers are illustrative, reported to the unit, so the rounding tolerance does not change the result.
Show the rule as writtenShowHide
EBA's formula, as written out for the first of its checks. Cells are written as {template, row, column, sheet}.
{C_32.02.a,r0020,c0060,} <= {C_32.02.a,r0010,c0060,}The next five:
{C_32.02.a,r0020,c0010,} <= {C_32.02.a,r0010,c0010,}{C_32.02.a,r0020,c0020,} <= {C_32.02.a,r0010,c0020,}{C_32.02.a,r0020,c0030,} <= {C_32.02.a,r0010,c0030,}{C_32.02.a,r0020,c0040,} <= {C_32.02.a,r0010,c0040,}{C_32.02.a,r0020,c0050,} <= {C_32.02.a,r0010,c0050,}And 1 more, the same formula for the other cells it covers.
Other rules on C 32.02.a
- Portfolios under articles 9 to 17, total category level post-diversification must equal the sum of its two parts (v6342_m)Warning
- Total core approach must equal the sum of its two parts (v6337_m)Warning
- Total category level pre-diversification must equal the sum of its seven parts (v6344_m)Warning
- Total core approach must equal portfolios under articles 9 to 17, total category level post-diversification (v6335_m)Warning
- Diversification benefits must equal the sum of its two parts (v6349_m)Warning
- Portfolios under the fall-back approach must equal the sum of its three parts (v6350_m)Warning
- Market price uncertainty calculated using the expert based approach cannot be more than market price uncertainty (v6351_m)Warning
- Market price uncertainty calculated using the expert based approach cannot be less than market price uncertainty (v6352_m)Warning
Every COREP own funds rule, by template
Checks like this one, run at the point of submission, are the first step to real-time supervision.