Leveraging XBRL on Banking Supervision

1. 12th XBRL International Conference Leveraging XBRL on Banking Supervision Ignacio Boixo COREP. XBRL Project Coordinator XBRL Spain. Manager Tokyo, 2005-11-08

2. Agenda • Basel II * • COREP: European Basel II • Dimensional extensibility** • Implementing XBRL Banking Supervision • Challenges in leveraging XBRL * Acknowledgement to Frédéric Marié ** Acknowledgement to Katrin Schmehl & Panagiotis Voulgaris

3. Structure of the New Basel II Accord

4. Pillar I: Minimum Capital Requirements Regulatory Capital ≥ 8% • Capital Adequacy Framework • Evolution of the most well-known Basel I requirement in minimum capital standard or Cooke Ratio Credit Risk Market Risk Standardized Approach or Revised Standardized Approach Internal Models Approach + or Operational risk Foundation IRBA Own funds Basic Indicator Approach ≥ 8% or or Lendings Standardized Approach Advanced IRBA or Advanced Measurement A.

5. 2 . Operational Risk • Credit, operational and market risks: Evolutionary path and capital incentives to move to the most advanced approach Increasing management standard Standardised Approach Foundation IRB Approach Advanced IRB Approach Credit risk modelling ? Basic Indicator Approach (BIA) The Standardised Approach (TSA) Advanced Measurement Approach (AMA) Standardised Approach Internal Models Approach Increasing capital charges

6. Pillar II: Supervisory Review Process • Pillar 2 is intended : • to achieve a level of capital commensurate with a bank’s overall risk profile • to encourage banks to develop and use better risk management techniques in monitoring and managing their risks

7. Pillar III: Market Discipline • Pillar 3 is intended to provide investors with reliable and timely information to understand a bank’s risk profile • Enhance role of market participants in encouraging banks to hold adequate levels of capital • Pre-condition for the use of some methodologies (Internal ratings-based approaches, AMA) • Qualitative and quantitative disclosures (information on methodology and key inputs, e.g. explanation of structure of internal rating system and PD, LGD assumptions,…)

8. COREP • Defining a COmmon REPorting framework around the solvency ratio for credit institutions and investment firms (Basel II) under the European Union Capital Requirements. • Based on the proposal for the Recasted European Directives 2000/12/CE and 93/6/EEC released in July 2004 • Under the Authority of the Committee of European Banking Supervisors • www.c-ebs.org

9. COREP concept: extension COREP vs. Pillars Future templates? Pillar I Capital COREP Templates Today Pillar I Capital Pillar II Supervision Pillar III Market

10. Report 25 ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 3 • COREP: Flexibility Principle Basel II European Law 9X,XX% Basel II compatible Directives 2000/12 & 93/6 Transposition into national Legislation Country 1 Country 2 Country 3 Country 25 National Regulation FSA 1 FSA 2 FSA 3 FSA 25 National Implementation Report 1 ------------------------------------ Report 2 Report 3 ---------------------------------------------------------------------------------------------------------------------------------------------------------------- XBRL challenge!

11. COREP Goals • Objectives & Principles • A new ratio = a new challenge & new opportunity • Reduce the regulatory reporting burden for International Groups • A better co-operation between Supervisors Objectives Principles • Flexibility • Consistency • Standardization

12. D1 C1 B 3 B 2 D2 C2 A D3 C3 D4 C4 B 1 Reporting CAD III 3 • COREP: Flexibility Principle è Flexibility 3 levels of flexibility (A, B & C) A: data needed by all Supervisors. B: specific to a country or a group of countries but integrated in the dictionary of common data. C: data specific to a country or sector (leasing…). To be integrated when possible. D: data outside COREP (credit register…) COREP

13. COREP concept: extension • Depending on the national requirements each country will determine a framework and a level of detail. COREP superset of reports Large report Custom report Medium report Small report

14. COREP concept: template Template: Dimension 2 Dimension 1 Measure Measure Measure Measure Dimension 3 Dimension 4

15. EXPOSURE TYPES EXPOSURE CLASSES STANDARD APPROACH CAPITAL REQUIREMENTS COREP concept: Data Matrix All the dimensions are optional!

16. imports . . dimension.XSD template.XSD measures.XSD COREP taxonomy customisation requirements • COREP defines a superset of possible reporting items. • Each country has the right to choose the level of detail. • The COREP framework must be highly flexible and extensible. • To meet this goal the framework is as modular as possible.

17. Customisation of Labels: I • meaningful names of the items to be reported • are used in reports to hide the technical name German labels English labels

18. Customisation of Labels: II • Each country defines its own dictionary in its national extension taxonomies. • The measure and dimension items can refer to several translations. <GOLD id=“m-fr-gr_Gold”> technical name National labels

19. Customisation of References • Each COREP reporting item refers to where it is derived from: the EU directive for Basel II. • References to the national law can be added. ORIGINAL CREDIT & COUNTERPARTY RISK EXPOSURE…

20. Customisation of the template structure • Possible changes: • Adding or removing columns and rows • Reordering the hierarchical structure • Restrict cells from being reported • Provide choices between dimensions • Remove dimensions from the template

21. Adding or removing columns and rows I COREP FIRB National FIRB D A B C A C Column D has to be added. Column B has to be removed.

22. A C D Adding or removing columns and rows II COREP taxonomy structure • The hierarchical structure of the FIRB template has been changed. • Column B is no longer allowed in the national taxonomy. • Column D has been added to the national taxonomy. A B C National taxonomy structure

23. Reordering the hierarchical structure: I • New items can be positioned as necessary in the national template structure. • Existing items can be reordered if required. • Thus every country can personalise the presentation of its templates. C A D Columns C and D have been exchanged.

24. A C D A D C Reordering the hierarchical structure: II Structure before reordering: New structure:

25. Restrict cells from being reported: I • Every cell is a combination of a measure and its dimensions. • Some row/column combinations are not valid inside the EU directive of Basel II and must not be reported. They are marked in grey inside the COREP templates. • National taxonomies can override those restrictions. D2 M M: Measure D1: Dimension 1 D2: Dimension 2 D1 X

26. Restrict cells from being reported: II Measures M Mn excludes Exposure Class Dimension D1 includes D2 D1 Dn Exposure Type Dimension includes D2 Dn

27. Restrict cells from being reported: III • Restricted cells can be grouped together, i.e. several cells in one column. • Inside the taxonomy they are added in a container that holds all the invalid dimensions. • The container can be reused for other measures of the template. M1 D1 Container that holds a dimension group. excludes D2 D3 M2 D4 excludes

28. Provide choices among dimensions: I • For this template either Dimension 2 or Dimension 3 can be used. D2 choice D3 D1

29. Provide choices among dimensions: II • If a banking supervisor decides that one of two or more possible dimensions has to be used for a national COREP template, it can define this choice inside the template taxonomy. Template measures Dimension A either Either Dimension A or Dimension B has to be used in the template. choice Dimension B or includes Dimension C

30. Remove dimensions from the template: I • The national banking supervisor decides that a dimension is not needed in a template.

31. Remove dimensions from the template: II • The national taxonomy can be created to reflect this requirement by removing the connection between the measures of the template and the dimension that is not needed. Template measures Dimension A includes includes Dimension B is no longer allowed. Dimension B

32. Supervision Reports Other data … COREP implementation: Model Bank Supervisor Taxonomy XBRL Errors INDUSTRY Internet Risk Management to XBRL from XBRL Operations Counterparties Collateral … Report XBRL ------------------------------

33. Risk Management IS Supervisory Operations Counterparties Collateral … Reports Other data … … COREP implementation: Model Didactic model for explanatory purposes only Basel II Basel II XBRL implementation COREP XBRL (National) COREP XBRL (Europe) Bank Supervisor Internet Bank operations, controls…. Presentation, Analysis… Errors Errors Basel II App. Basel II App. to XBRL from XBRL Report ------------------------------ Report ------------------------------ XBRL core File Transfer (National)

34. COREP implementation: Banks XBRL Reports • Multiple implementation approaches: • Small banks may use Application Service Provider -ASP- model, outsourcing technical complexity • Banks may report all to all the Supervisors: Basel II & IFRS, Banking & Stock Exchange… • International Banks may reduce supervisory burden when reporting to different countries Bank 1 Bank 2 Bank 3 ASP provider Bank n Basel II Banking Supervisor IFRS International Bank Stock Ex. Supervisor Country Z Supervisor

35. COREP project: Acknowledgments (kick-off workshop, February 2005)

36. Opportunity window 2002 2003 2004 2005 2006 2007 2008 Too late • Operational: • Basel II • IFRS/IAS • ••• Today! Too early • Establishing: • CEBS • XBRL EU • •••

37. COREP Next steps: Releases Steering Committee Dimensions: Public draft Vendors involvement European Workshop Dimensions: Approved COREP: Published 05-06-03 05-07-19 05-08-26 05-09-15 05-11-07 1Q 2005 Release 0.5 Release 0.6 Release 0.7 Release 1.0

38. Report 25 ---------------------------------------------------------------------------------------------------------------------------------------------------------------- Basel II: Bottom up approach Basel II Int’l Accord Defined into XBRL terms Int’l XBRL taxonomy Global consolidation Country n Country 1 Country 2 Country 3 National Jurisdiction FSA n FSA 1 FSA 2 FSA 3 National Implementation Report 1 ------------------------------------ Report 2 Report 3 ---------------------------------------------------------------------------------------------------------------------------------------------------------------- ! Real XBRL implementations

39. COREP Next steps: Options Challenge • The real challenge is not the initial design of the taxonomy; a group of enthusiastic people is ready to carry out this job, as it has been demonstrated. • The real challenge is real the XBRL implementation • The long term challenge is building XBRL Banking Supervision in a bottom up approach

40. Thanks - Obrigado - Merci - Gracias Danke - Grazie - Ευχαριστίες - Спасибо Pieter Bruegel The Tower of Babel. 1563