- Question ID
-
2017_3095
- Legal act
- Directive 2014/49/EU (DGSD)
- Topic
- Funding provisions (financing means, use of funds, borrowing, calculation of contributions)
- Article
-
13
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- EBA/GL/2015/10 - Guidelines on methods for calculating contributions to deposit guarantee schemes
- Article/Paragraph
-
47
- Type of submitter
-
Deposit Guarantee scheme
- Subject matter
-
Sliding scale method
- Question
-
We would prefer to apply the "sliding scale" method mentioned in EBA/GL/2015/10, but a strict interpretation of the methodology within the guidelines prevents the use of the whole defined scale.
Would it be in compliance with the Guidelines to adjust the formulas in order to achieve ARW along the whole defined scale? And what adjustment would be preferable?
- Background on the question
-
Applying the "sliding scale" method suggested in EBA/GL/2015/10 (Guidelines on methods for calculating contributions to deposit guarantee schemes) would prevent the use of the whole defined scale, in contrast to the "bucket" method.
Since there in practice will be no banks getting full maximum (or minimum) score on all of the IRS (individual risk score), the ARS (aggregate risk score) will typically not run from 0 to 100 within the "sliding scale" method. In our case the ARS of the banks are between 31 to 79, so only about half of the defined scale will be in use.
EBA/GL/2015/10 Article 47specifies that "the DGS should strive to map the ARW [aggregate risk weights] to the aggregate risk scores (ARS) in such a way that it is possible for member institutions to be assigned to the lowest and highest ARW".
Which adjustment to the method should be done to achieve this; a) adjust the ARS so that the most riskiest bank score 100 and the least riskiest score 0 or b) alter the linear formula ARW = β + (α - β) * ARS/100 (or the exponential formula) to achieve ARW along the whole defined scale?
- Submission date
- Final publishing date
-
- Final answer
-
Following paragraphs 42, 45 and 47 of EBA/GL/2015/10 (Guidelines on methods for calculating contributions to deposit guarantee schemes) the consequence of using a linear sliding scale formula to translate ARS (aggregate risk score) results into ARW (aggregate risk weights) is that it is unlikely that institutions will be spread out across the full spectrum of the ARW chosen by the authorities.
In line with paragraph 42, the authorities should decide whether the sliding scale is, therefore, the appropriate method for the relevant banking sector reflecting the differences in risk incurred by different institutions, as per paragraph 45 of EBA/GL/2015/10.
Taken together with paragraph 19 of Annex 1 of EBA/GL/2015/10, the Guidelines allow the use of a different formula to translate the ARSs into the ARWs, with regard to the general requirement in paragraphs 42, 45 and 47 of the Guidelines.
It is not the intention that the 'sliding scale' method in practice should use just half of the defined scale, in particular in the case described in the background to this question. EBA/GL/2015/10 paragraph 20 of Annex 1 sets out a linear formula that can be used to translate ARS into the ARW. It may be possible to adjust this formula in order to use more of the defined scale. Such an adjustment is at the discretion of the national competent authority, provided that it remains compliant with the general sense of the prescribed formula.
The last sentence of EBA/GL/2015/10 paragraph 47 which states that "this does not imply that in each year the DGS should necessarily use the full interval and assign institutions to the ARW corresponding to the lowest and the highest points of the interval", should also be taken into account.
- Status
-
Final Q&A
- Answer prepared by
-
Answer prepared by the EBA.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.