The rule in plain words
None of the values it checks in prudent valuation can be negative.
EBA checks it for six 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 and model risk calculated using the expert based approach. And 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 72 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: Memorandum item: pre-diversification AVAs reduced by more than 90% by diversification under method 2 >= 0
What to do if your filing fails it
- 01Open the template below and find the cells the rule reads.
- 02Look for a value with the wrong sign in these cells, such as an amount entered as a negative number.
- 03EBA compares the values exactly here: there is no rounding tolerance.
- 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
- 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
A worked example
The first of its checks, with simple numbers.
Memorandum item: pre-diversification AVAs reduced by more than 90% by diversification under method 2, market price uncertainty calculated using the expert based approach must then be at least 0.
A file that reports 0 passes. One that reports -100 fails, by 100.
The numbers are illustrative.
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,r0170,c0020,} >= 0The next five:
{C_32.02.a,r0130,c0040,} >= 0{C_32.02.a,r0020,c0060,} >= 0{C_32.02.a,r0040,c0050,} >= 0{C_32.02.a,r0100,c0060,} >= 0{C_32.02.a,r0090,c0030,} >= 0And 66 more, the same formula for the other cells it covers.
Other rules on C 32.02.a
- Each of the 21 values it checks in prudent valuation cannot be more than zero (v6571_s)Warning
- Total category level pre-diversification cannot be less than model risk AVA (all sheets added up) (v6359_m)Warning
- Total AVA must equal market price uncertainty plus close-out costs plus model risk (v6358_m)Warning
- Total AVA must equal the sum of its seven parts (v6357_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
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.