The rule in plain words
Total AVA must equal these three added up:
- Market price uncertainty
- Close-out costs
- Model risk
EBA checks it for five rows: total category level pre-diversification, unearned credit spreads AVA, investment and funding costs AVA, (-) Diversification benefit calculated using method 1, and (-) Diversification benefit calculated using method 2. That makes five 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.
(-) Diversification benefit calculated using method 2, Total AVA = (-) Diversification benefit calculated using method 2, Market price uncertainty + (-) Diversification benefit calculated using method 2, Close-out costs + (-) Diversification benefit calculated using method 2, Model risk
What to do if your filing fails it
- 01Open the template below and find the cells the rule reads.
- 02Add up the parts in your file and compare the result with the total.
- 03If they differ, a part is missing, a value sits in the wrong cell, or the total is out of date.
- 04EBA allows a small rounding difference, worked out from the decimals each value is reported with.
- 05It runs only when your filing indicators mark C 32.02 as reported.
- 06This 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
- 0040Total category level pre-diversification
- 0050Of which: unearned credit spreads AVA
- 0060Of which: investment and funding costs AVA
- 0150(-) Diversification benefit calculated using method 1
- 0160(-) Diversification benefit calculated using method 2
Columns
- 0010Market price uncertainty
- 0030Close-out costs
- 0050Model risk
- 0110Total AVA
A worked example
The first of its checks, with simple numbers.
Total AVA must then be 2,450.
A file that reports 2,450 passes. One that reports 2,550 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,r0160,c0110,} = {C_32.02.a,r0160,c0010,} + {C_32.02.a,r0160,c0030,} + {C_32.02.a,r0160,c0050,}The next four:
{C_32.02.a,r0060,c0110,} = {C_32.02.a,r0060,c0010,} + {C_32.02.a,r0060,c0030,} + {C_32.02.a,r0060,c0050,}{C_32.02.a,r0050,c0110,} = {C_32.02.a,r0050,c0010,} + {C_32.02.a,r0050,c0030,} + {C_32.02.a,r0050,c0050,}{C_32.02.a,r0150,c0110,} = {C_32.02.a,r0150,c0010,} + {C_32.02.a,r0150,c0030,} + {C_32.02.a,r0150,c0050,}{C_32.02.a,r0040,c0110,} = {C_32.02.a,r0040,c0010,} + {C_32.02.a,r0040,c0030,} + {C_32.02.a,r0040,c0050,}Other rules on C 32.02.a
- Total AVA must equal the sum of its seven parts (v6357_m)Warning
- Total category level pre-diversification cannot be less than model risk AVA (all sheets added up) (v6359_m)Warning
- Model risk calculated using the expert based approach cannot be less than model risk (v6356_m)Warning
- Model risk calculated using the expert based approach cannot be more than model risk (v6355_m)Warning
- Close-out costs calculated using the expert based approach cannot be less than close-out costs (v6354_m)Warning
- Close-out costs calculated using the expert based approach cannot be more than close-out costs (v6353_m)Warning
- Market price uncertainty calculated using the expert based approach cannot be less than market price uncertainty (v6352_m)Warning
- Market price uncertainty calculated using the expert based approach cannot be more than market price uncertainty (v6351_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.