EBA stress test: Individual PIIGS exposure for all 90 banks

When the European Banking Authority (EBA) published their stress test results last Friday, they also made public the exposure of individual banks towards government bonds. In terms of transparancy, that’s a big step forward. Prior to the publication of the results, banks bent over backwards to thwart this idea. Fortunately, they did not succeed.

However, regarding the EBA’s way of presenting the this information there is some room for improvement, to put it mildly. The data for individual banks is scattered among so-called “individual disclosure templates”. We’re  talking about 90 PDF documents, here.

Last night, I digged through the documents and compiled a consolidated table showing the gross exposure to GIIPS sovereigns (Greece, Ireland, Italy, Portugal and Spain) of all 90 banks (Yesterday, I already published a table for the German banks.)

Here’s the result for the EU banking system:

(click here to see the complete table on Google Docs)

Different EBA numbers don’t add up

What I find slightly confusing: the numbers from the individual disclosure templates do not match the figures given in the“Aggregate Report” on the stress tests, also published by EBA on Friday night.

On page 28 of the “Aggregate Report”, EBA discusses “Sovereign holdings by EU banks and the impact of potential changes to the treatment of selected sovereign holdings”.

There, they  report  the “aggregate exposure-at default” (EAD) of the 90 banks with regard to public debt issued by Greece (98.2 bn Euros), Ireland (52.7 bn Euros) and Portugal (43.2 bn Euros).

However, if you add up the gross exposure given in the “individual disclosure templates” the figures are significantly lower. (Greece: 91 bn Euro, Ireland: 19 bn Euro, Portugal: 40 bn Euro).

I enquired at the EBA press office about the reason for this differences. This is what they replied:

“disclosure templates report the accounting value of the direct sovereign exposures (immediate borrower basis approach) towards Central and local governments, while the EAD are computed according to the CRD [I guess this stand for the Basel "Capital Requirements Directive"] definition of exposures and sovereign counterparts (the perimeter is different and the ultimate borrower basis approach is used).”

I’m trying to get the economic intuition behind these two numbers. I think there are several interesting questions:

1. Which figure gives a better picture of the “true” exposure of the banking system?
2. What precisely is driving the difference?
3. Why is the EAD not being published for individual banks?
4. How large is the EAD of the 90 banks with regard to Italy and Spain? (The gross exposure according to the individual disclosure templates are 326 bn Euro for Italy and 287 bn Euro for Spain).

I’ve asked those questions to  EBA and am really looking forward to hearing from them.

Update: I’ve just received answers by the Bundesbank and the EBA regarding the gap between the gap between the figures for EAD and the gross exposures. The Bundesbank wrote me (in German, translation done by myself):

“Different definitions of the term “exposure” are the reason for the variation. The EAD is based on the CRD definition (used on page 6  of the disclosure templates) and includes off-balance sheet positions, while the direct gross long positions are based on the accounting value.

Here’s an example:

Unused lines of credit are entering the EAD calculations (via conversion factors). However, they are not part of the accounting value.”

This is EBA’s explanation:

“The EAD is higher as it would include also exposures guaranteed by sovereigns (e.g. corporate loan guaranteed by sovereign) as well as exposures to public sector entities.

You cannot get sovereign EADs from the disclosure templates as such breakdown is not provided.

There is no link between the sovereign EAD and the gross and net exposure disclosed in the sovereign disclosure template. Moreover the EAD breakdown by country reported in the disclosure template is provided only when the exposures are higher than 5% of total EAD.

We are not providing additional individual sovereign EAD for other countries.”

So this is what the Europeans call transparancy….

Important disclaimer: I tried to work as thoroughly as possible . However, the task was very tedious. Hence I cannot rule out that there are transcription errors in my table. If you notice any, please let me know.)