CEBS: bank disclosures lack detail

The level of disclosure in the 2008 annual reports of major banks was better than the preceding year, but there is still much room for improvement, the Committee of European Banking Supervisors (Cebs) said on May 28.

In a public hearing held in London, Cebs laid out its findings from an assessment of the reports of 17 major banks, three of which were US firms. It concluded that, while "some tangible improvements compared with the previous year have been noted, the observation does not fit for all financial institutions as the level of disclosures appear rather heterogeneous".

Disclosures in certain sections of banks' reports were considered "too generic" and "may justify further attention". By way of example, Cebs said banks were not providing enough details of the methods they use to calculate gains on their own credit risk. While some banks recorded large one-off gains in the first quarter due to spreads widening on holdings of their own debt - reversing substantial Q4 losses - Cebs noted only one firm explained these gains would reverse if the market picked up.

Other areas where greater disclosure is needed include mark-to-model valuations, impairment of assets at goodwill, more granular information on guarantors, such as credit derivatives product companies, and liquidity risk.

Furthermore, although banks provided detailed information regarding their exposures, the assumptions and quantitative models used to value instruments such as collateralised debt obligations, residential mortgage-backed securities and commercial mortgage backed securities tend not to be described in sufficient detail.

Cebs concluded that many banks tried to avoid disclosing quantitative methodology and assumptions by saying the information was confidential.

Following its assessment and comments made on Wednesday by market participants, Cebs intends to prepare a report on disclosure and release it for public consultation at the end of June.

See also: 'Technical' factors drive banks back to profit