16. Links Between Financial Statements and Regulatory Exposures

Table LIA provides qualitative explanations on the differences observed between accounting carrying value (as defined in Template LI1) and amounts considered for regulatory purposes (as defined in Template LI2) under each framework. Table LIA: Explanations of differences between accounting and regulatory exposure amounts Purpose: Provide qualitative explanations on the differences observed between accounting carrying value (as defined in Template LI1) and amounts considered for regulatory purposes (as defined in Template LI2) under each framework. Scope of application: The template is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must explain the origins of the differences between accounting amounts, as reported in financial statements amounts and regulatory exposure amounts, as displayed in Templates LI1 and LI2. (a) Banks must explain the origins of any significant differences between the amounts in columns (a) and (b) in Template LI1. (b) Banks must explain the origins of differences between carrying values and amounts considered for regulatory purposes shown in Template LI2. (c) In accordance with the implementation of the guidance on prudent valuation (see Basel Framework “prudent valuation guidance”), banks must describe systems and controls to ensure that the valuation estimates are prudent and reliable. Disclosure must include: • Valuation methodologies, including an explanation of how far mark-to-market and mark-to-model methodologies are used. • Description of the independent price verification process. • Procedures for valuation adjustments or reserves (including a description of the process and the methodology for valuing trading positions by type of instrument). (d) Banks with insurance subsidiaries must disclose: • The national regulatory approach used with respect to insurance entities in determining a bank's reported capital positions (ie deduction of investments in insurance subsidiaries or alternative approaches, as discussed in Basel Framework “Scope and definitions” Banking, securities and other financial subsidiaries (Insurance entities); and • Any surplus capital in insurance subsidiaries recognized when calculating the bank's capital adequacy (see Basel Framework “Scope and definitions” Banking, securities and other financial subsidiaries (Insurance entities). Template LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories Purpose: Columns (a) and (b) enable users to identify the differences between the scope of accounting consolidation and the scope of regulatory consolidation; and columns (c)-(g) break down how the amounts reported in banks' financial statements (rows) correspond to regulatory risk categories. Scope of application: The template is mandatory for all banks. Content: Carrying values (corresponding to the values reported in financial statements). Frequency: Annual. Format: Flexible (but the rows must align with the presentation of the bank's financial report). Accompanying narrative: See Table LIA. Banks are expected to provide qualitative explanation on items that are subject to regulatory capital charges in more than one risk category. a b c d e f g Carrying values as reported in published financial statements Carrying values under scope of regulatory consolidation Carrying values of items: Subject to credit risk framework Subject to counterparty credit risk framework Subject to the securitization framework Subject to the market risk framework Not subject to capital requirements or subject to deduction from capital Assets Cash and balances at central banks Items in the course of collection from other banks Trading portfolio assets Financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers Reverse repurchase agreements and other similar secured lending Available