The rule in plain words
Close-out costs calculated using the expert based approach cannot be more than close-out costs.
EBA checks it for twelve rows, from total core approach (0010) to memorandum item: pre-diversification AVAs reduced by more than 90% by diversification under method 2 (0170). That makes twelve 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.
Total core approach, Of which: calculated using the expert based approach <= Total core approach, Close-out costs
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
- 0030Portfolios under articles 9 to 17 - total category level post-diversification
- 0040Total category level pre-diversification
- 0050Of which: unearned credit spreads AVA
- 0060Of which: investment and funding costs AVA
- 0090Interest rates
- 0100Foreign exchange
- 0110Credit
- 0120Equities
- 0130Commodities
- 0170Memorandum item: pre-diversification AVAs reduced by more than 90% by diversification under method 2
Columns
- 0030Close-out costs
- 0040Of which: calculated using the expert based approach
A worked example
The first of its checks, with simple numbers.
Close-out costs 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,r0010,c0040,} <= {C_32.02.a,r0010,c0030,}The next five:
{C_32.02.a,r0050,c0040,} <= {C_32.02.a,r0050,c0030,}{C_32.02.a,r0090,c0040,} <= {C_32.02.a,r0090,c0030,}{C_32.02.a,r0100,c0040,} <= {C_32.02.a,r0100,c0030,}{C_32.02.a,r0060,c0040,} <= {C_32.02.a,r0060,c0030,}{C_32.02.a,r0030,c0040,} <= {C_32.02.a,r0030,c0030,}And 6 more, the same formula for the other cells it covers.
Other rules on C 32.02.a
- Market price uncertainty calculated using the expert based approach cannot be less than market price uncertainty (v6352_m)Warning
- Close-out costs calculated using the expert based approach cannot be less than close-out costs (v6354_m)Warning
- Market price uncertainty calculated using the expert based approach cannot be more than market price uncertainty (v6351_m)Warning
- Model risk calculated using the expert based approach cannot be more than model risk (v6355_m)Warning
- Portfolios under the fall-back approach must equal the sum of its three parts (v6350_m)Warning
- Model risk calculated using the expert based approach cannot be less than model risk (v6356_m)Warning
- Diversification benefits must equal the sum of its two parts (v6349_m)Warning
- Total AVA must equal the sum of its seven parts (v6357_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.