Collection of Contributions by The Institutional Protection Scheme of EdB

Associations, Authorities, Read

A credit institution is an undertaking which conducts at least one of the banking businesses described in detail in section 1 (1) of the German Banking Act (Kreditwesengesetz) commercially or on a scale which requires commercially organised business operations. The banking businesses include the deposit business and credit business, but also specific securities-related activities such as principal broking services and the safe custody business.

The EdB compensation scheme is in place to protect depositors from the risks associated with the banking business of its members.

If a compensation event occurs, the depositor shall have a right to compensation as provided for by the law from the deposit guarantee scheme of which the CRR credit institution is a member.

The Entschädigungseinrichtung deutscher Banken GmbH (EdB, Compensation Scheme of German Private Banks) is a wholly-owned subsidiary of the Association of German Banks. It was entrusted by the German Federal Finance Ministry with the task of running the statutory deposit guarantee and investor compensation scheme for the private banks in Germany.

The EdB’s job is to compensate the creditors of a bank assigned to it where the bank is unable to repay deposits. Liabilities arising from securities transactions conducted by a credit institution (i.e. bank) as defined in the EU Capital Requirements Regulation (CRR) are also deemed to be deposits.

Pursuant to section 1 (3d) of the German Banking Act, a CRR credit institution is a credit institution that also meets the narrower definition of a credit institution in accordance with Article 4 (1) no. 1 of the EU Capital Requirements Regulation (CRR). CRR credit institutions are supervised in the context of the Single Supervisory Mechanism (SSM) either directly by the European Central Bank (ECB) as significant institutions (SIs) or by BaFin together with the Deutsche Bundesbank as less significant institutions (LSIs).

In accordance with Section 26 (1) of the German Deposit Guarantee Act (Einlagensicherungsgesetz or EinSiG), the CRR credit institutions are obliged to pay annual contributions at the end of each accounting year (Jahresbeiträge). The accounting year covers the period from October 1st of one year to September 30th of the following year. The contributions to the EdB are therefore due for payment on September 30 of each year.

The details of the contribution payment can be found in the ordinance issued by the Federal Ministry of Finance on the financing of the compensation facility of German banks and the compensation facility of the Federal Association of Public Banks in Germany (compensation facility financing ordinance or Entschädigungseinrichtungs-Finanzierungsverordnung – EntFinV), see Federal Law Gazette I of 11 January 2016 p. 9 f.

Pursuant to Section 17 (2) EinSiG, the EdB must ensure that the financial resources available to it reach a target level of at least 0.8 percent of the covered deposits of the institutions belonging to it by July 3, 2024.

The EdB has developed an internet platform for the regular collection of annual contributions to the EdB, via which a questionnaire is made available to the institutes from the end of May / beginning of June each year. A number of key figures and the external rating results must be entered in the questionnaire. The Internet access data for using the platform are sent to the banks annually by post.

The completely recorded questionnaire must be sent electronically via the aforementioned platform together with the following documents (see also Section 15 Paragraphs 2 to 4 of the EntFinV):

  • Asset encumbrance sheets, current and previous year (template F 32.01),
  • COREP sheets, current and previous year,
  • SAKI sheet, current and previous year,
  • Documentation of all ratings valid as of May 31, 2020 in accordance with Section 10 of the EntFinV (at least one rating is required)

The following documents are to be sent in paper form to the Auditing Association of German Banks e.V.: The fully recorded and legally binding questionnaire including date and institute stamp, and in accordance with Section 34 (1) EinSiG: the audit report for the financial year, insofar as this has not already been sent to the Auditing Association.

The EdB can allow the CRR credit institutions assigned to it to pay up to 30% of their annual contribution in one accounting year by assuming contractual payment obligations. The prerequisites are that the EdB and the CRR credit institute have signed a framework agreement on payment obligations pursuant to Section 21 of the EntFinV and a framework contract on financial collateral pursuant to Section 27 of the Funding Regulation by June 30 of the respective accounting year. In addition, there has to be an agreement on the assumption of payment obligations by September 1st of the accounting year according to § 22 EntFinV for the accounting year and the provision of financial collateral according to § 26 EntFinV.

A contribution notification will be created on the basis of the transmitted data. The contribution notification is an administrative act against which an objection can be raised at the EdB. However, according to Section 32 (1) EinSiG, objections and actions for rescission have no suspensive effect. Pursuant to Section 32 (2) EinSiG, the law provides for the possibility of enforcement from the contribution notice in accordance with the provisions of the Administrative Enforcement Act.

The EdB also has to levy special contributions if it finds that its funds are insufficient to carry out compensation proceedings. Section 29 EinSiG regulates the details.

The contributions to the compensation scheme depend on the creditworthiness of the assigned institute. You will find an explanation in “Creditworthiness functions according to the EntFinV”. The external rating results, which are included in the calculation of the creditworthiness with 25%, are part of these explanations.

With regard to the creditworthiness function, a left-skewed distribution in favor of the discount classes was determined as part of the annual backtesting process, which is also expressed in an increased “µ” in the EBA formula. On the basis of a now broader and qualitatively better database, both individual risk indicators and the transformation functions were validated with the aim of a broader spread. On the basis of transformation functions, the calculated risk indicators are assigned individual risk values ​​(IRSi), which are combined to form a weighted individual risk value. Using the sum value (ARSi) of the weighted individual risk values, the aggregated risk weight (ARWi) is determined based on ten credit rating cagegories using a further transformation function.

The annual contribution is the result of the following formula:

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Leasing Company Rating

Agencies, Associations, Methodologies, Read, Systems

Leasing companies have been analyzed by leading US credit rating agencies for decades. In addition to these rating agencies, there are other rating approaches for leasing companies. Three of these are briefly presented here. The first relates to a joint initiative by Landesbanken and other credit institutions to operate bank-internal system for rating leasing companies. The second is the offer from a company from the organization of the Association of German Banks. The third is the rating offer from a Bulgarian rating agency, which also rates German banks.

RSU Rating Service Unit

The history of RSU Rating Service Unit GmbH & Co. KG started in 2001, when German Landesbanken and the DekaBank launched a joint project for the development of internal rating systems, to satisfy the regulatory requirements for what is referred to as the Internal Ratings-based Approach (IRBA). During 2002 through 2003, an interdisciplinary project teams developed the methodology for rating ten different exposure classes. Once ready for use, it was integrated into the “LB-Rating” application. The joint effort allowed to draw on the experience and the portfolios of all RSU partners. In December 2003 the Landesbanken became shareholders that participated in the project and/or their legal successors.

The rating indicates a Probability of Default (PD). The main measure of the quality of a rating system is what RSU refers to as “discriminatory power”, i. e. the system’s ability to distinguish between high-risk and low-risk obligors. Some rating systems also determine the Loss Given Default ratio (LGD), which is another area where accuracy is crucial. Essentially, RSU’s methodological work focuses on the validation of the PD and LGD estimates computed. This involves, in particular, considering the defaults actually observed. At the same time, ratings are kept strictly confidential and data protection is ensured.

When developing rating systems, models for estimating probabilities of default and loss ratios are created based on historical information and solid expertise. However, empirically determined functional relationships may change or become less stable over time. For this reason, rating systems must, by law, be reviewed on a regular basis. RSU’s methodology department promisses to validate the rating systems every year in consultation with the institutions that contribute to RSU’s data pool. Reviews are performed according to a defined validation policy using professional information and statistical computing technology.

Having received supervisory clearance for its rating systems, RSU has made them available to clients outside the group of shareholding banks since 2007. Currently, RSU claims to have clients including institutions from all three sectors of the German banking system, a number of financial service providers, international institutions, and institutional investors. LB-Rating was implemented using a modern Java architecture (Java EE) as well as IBM products and thus complies with a very common and well established industry standard. LB-Rating is a completely web-based application, which can be accessed using Internet Explorer. Once it has been individually configured and activated, it requires no additional local installation.

LB-Rating is a system designed for preparing, editing, validating and managing internal ratings in accordance with the Basel III/IV framework. It provides standardized and objective credit ratings for various types of obligors as well as for specialized lending.
There are twelve modules now. Clients only acquire licenses for the modules they need for their specific business.

  • One module is intended for rating leasing companies that apply German accounting standards (HGB). It performs a net asset value calculation to take the specific characteristics of these companies into account. The rating model is based on a scorecard approach.
  • The Special Purpuse Company (SPC) Real Estate Leasing module, which uses both scorecard and simulation elements, is designed for assessing real estate leasing projects. The residual value of the property is estimated by simulation. Transfer risk is included for offshore transactions.

Routinely reviewed every year since 2005, the statistical accuracy depends on a database of more than 17,500 ratings. In early 2007, the module received supervisory approval for use under the IRBA.

RSU provides one-year migration matrices and multiannual PD profiles for each of its twelve rating systems. The cyclical properties of the rating systems reflect in the migration matrices and PD profiles, which is essential for the institutions that use them. Information about rating transitions is crucial for banks in various areas of risk management. Once IFRS 9 takes effect, modelling long-term rating migrations will become even more important.

Methodological parameters such as score weights or calibration settings are stored separately and can be changed at short notice without modifying the software. The application is based on a thin-client concept, i.e. all necessary data is provided by the server to the extent possible. Installation and maintenance services are carried out centrally on the server without affecting the user. Changes made on the server, e.g. new releases or security updates, take effect at the same time for all clients. Communication with the system is by secure and encrypted SSL data transfer through dedicated networks. Technological modifications are performed twice a year at fixed dates. All related processes are based on ITIL, thus ensuring secure and high-quality IT workflows.

Since Rating-Flex is a solution for transferring existing rating systems to an audit-proof IT platform, leasing company ratings of different RSU users may differ.. RSU’s Rating-Flex allows to incorporate a client’s own rating algorithms into LB-Rating. WIth respect to all else, incorporated rating systems benefit from the complete functionality of LB-Rating.

GBB-Rating

Under the umbrella of the Auditing Association of German Banks, GBB-Rating Gesellschaft für Bonitätsbeütung mbH (hereinafter referred to as “GBB-Rating”) has been operating as an independent rating agency since 1996. GBB-Rating draws up its opinion on the future viability of a leasing company which is partly based on uncertain future events, their prediction and thus necessarily on estimates. Therefore it is not a statement of fact or a recommendation, but an expression of opinion.

Cologne-based GBB-Rating is a rating agency with particular expertise in the financial services sector. takes into account the requirements of the international standards for rating agencies of IOSCO (“Code of Conduct Fundamentals for Credit Rating Agencies”, the International Organization of Securities Commissions) when applying its rating methodology and when carrying out the rating process for the creation of commissioned and unsolicited credit ratings . In accordance with Regulation (EC) No. 1060/2009 of the European Parliament and of the Council, GBB-Rating was registered by the European Securities and Markets Authority in Paris (ESMA) on July 28, 2011 and has been subject to European supervision for rating agencies since then.

The GBB-Rating leasing company rating methodology is based on the fundamental question of the extent to which the company can meet its financial obligations in full and on time in the future. Determining this ability is the focus of the analysis. The holistic analysis of the GBB-Rating is carried out taking into account all available information classified as relevant. GBB-Rating makes its statements on the basis of the existing rating methodology, which combines quantitative and qualitative approaches.

The aim of the rating process is to arrive at an appropriate and reliable credit rating in a consistent manner. The procedure is based on ensuring the objective of objectivity, quality, impartiality as well as independence and confidentiality. As part of the rating process, the business model-related success and risk factors in particular are analyzed and condensed into a future-oriented, comprehensible overall assessment.

The basis for the ratings are documents on the asset, financial and earnings position as well as the business model, business strategy, the relevant markets, the risk management, the risk situation and the shareholder background. The basic documents and information required to carry out a rating are essentially business reports, as well as information from the companies in connection with a GBB-Rating questionnaire.

Information from ad hoc announcements or other publicly available information as well as information and documents in the context of management meetings are also taken into account. All available rating-relevant documents and information are checked for topicality, completeness and plausibility during the course of the rating process.

GBB-Rating provides both solicited and unsolicited ratings. A commissioned rating is based both on internal information provided by the company to be assessed and on publicly available data. Unsolicited ratings are generally based on publicly available data and information (further details can be found in the policy for the implementation and creation of unsolicited ratings). Unsolicited ratings can also be carried out purely for internal purposes (benchmarking), in which case it is not published.

Published ratings are continuously monitored by the leading analyst and a second analyst and updated at least once a year. The leading analyst presents the rating result with all analyzes and evaluations to an independent rating committee, which makes final decisions on the following issues:

  • setting the rating,
  • suspending a rating,
  • withdrawing a rating (“Withdrawal”).

Before each acceptance or continuation of an order, GBB-Rating checks whether the independence regulations of GBB-Rating are complied with, whether there is a risk of potential conflicts of interest or other order risks and whether sufficient resources are available to adequately take into account the special requirements of the order. In case of doubt, the order must be rejected or resigned. Required advance information, for example, in order to be able to assess the complexity of the company and the main features of the business model, is collected in an initial internal pre-analysis. If there are no reasons that prevent an order from being accepted, the rating process, the rating methodology and the conditions for a rating are explained to the company interested in a rating. In advance, GBB-Rating does not indicate a rating or a preliminary rating.

After the order has been placed in writing, the company to be assessed receives a list of information and documents required for the analysis in connection with a questionnaire. Additional requests for information and documents may be necessary during the course of the rating process. All data and evaluations received are treated confidentially by GBB-Rating. In order to guarantee the high level of confidentiality, GBB-Rating has set up supporting organizational measures (e.g. restrictive access authorizations, Chinese walls) and drawn up appropriate regulations. The rating is carried out by the leading analyst who is the contact for the rating customer. The implementation of the rating is accompanied by an independent second analyst.

Do not expect to talk always to the same analysts. Potential conflicts of interest are countered, among other things, through a rotation process. The leading analyst changes after four and the second analyst after five years at the latest. A resumption of the analysis activity can take place after two years at the earliest if the supervision period was previously fully used. In order to guarantee the continuity of the assessment, changes in the rotation of the leading analyst and the second analyst are generally delayed. When planning and assigning rating orders, the aspects of technical knowledge, availability and independence are taken into account.

The analysis is supported by IT-based rating models based on a comprehensive catalog of criteria. For the analysis and evaluation of both the qualitative and the quantitative criteria, there are extensive and detailed internal guidelines or specifications and process descriptions (rating manual). On the basis of the financial and business profile, taking into account defined internal rules and procedures, the leading analyst analyzes, assesses and evaluates the key figures and criteria. The second analyst controls, checks for plausibility and checks the credit rating of the leading analyst on the basis of internal guidelines and procedures of GBB-Rating. The leading analyst presents the rating result with all evaluations to an independent rating committee, which makes the final rating decision.

The leasing company will be informed in writing shortly after the final confirmation by the rating committee (“notification”). The modified procedure for the publication of unsolicited ratings can be found in the policy for implementing and creating unsolicited ratings. There must be a reasonable period of time between informing the institute and a possible publication or notification to subscribers (hereinafter “publication”) of the rating.

The leasing company is informed no later than one full working day (within business hours) before publication, so that there is an opportunity to point out factual errors or ambiguous formulations. In the case of a commissioned or solicited rating, the rating customer determines whether a rating result is published. Publications of rating results by the leasing company (e.g. press releases) must be coordinated with GBB-Rating.

If there is no follow-up rating already published on the GBB-Rating homepage prior to an unequivocal publication commitment or a publication revocation, the rating result to be updated is marked with the addition “in communication” after a reasonable period of time to indicate that a current rating action is still being coordinated with the rating customer. After a further ten working days at the latest, a final decision about the publication or, alternatively, a withdrawal of the rating from the homepage must be made. The rating list will be updated accordingly. A rating in which only the publication is withdrawn remains valid in relation to the client who pays the fee. There are no technical access restrictions in connection with the publication. A financial expense (fee, publication fee, access fee, etc.) in connection with a publication does not arise either for the rating customer or for interested third parties.

Along with the fee billed, a rating is generally valid for a period of twelve months after being announced. During this period, the development of the company and the industry is continuously monitored by the analysts. The aim is to ensure that a rating remains up-to-date in its statement. For this purpose, the leading analyst is in contact with the company and evaluates a. information and publications during the year. If events or developments occur during this observation period that could have a materially positive or negative effect on the company’s economic situation, the rating is reviewed and adjusted if necessary.

An Internal Review function – as required by the regulator – is responsible for developing and reviewing rating methods. The method committee as the approval body is the final decision-making body for the implementation and introduction of method adaptations or changes. Depending on the occasion, but at least once a year, the rating methodologies undergo a backtesting / validation process. In the event of changes to the rating methodology, the rating customers affected are informed about the planned changes and the possible effects as part of a four-week consultation. A review of the ratings concerned takes place within six months.

BCRA

The Bulgarian Credit Rating Agency (BCRA) provides an appraisal of the creditability of a leasing company. It intends to express an external, objective, and independent opinion for the capability of the Company to serve its liabilities in full, and on time. The short-term ratings present an opinion for the possibility that the rated Company fails to meet its liabilities, within the short term (up to 12 months), while all else is a long-term rating.7

In order to rate leasing companies, the historical development of the sector is reviewed, and its present state is analyzed. The main trends in the sector are analyzed, as well as the manner, in which these influence the scrutinized leasing company. Based on this analysis, a forecast is made for the future development of the leasing sector. BCRA also reviews the legal framework, regulating the activity of the companies in the sector and the risks, resulting from its current state, and possible changes in it.

BCRA makes a detailed analysis of the competitive position and financial strength of the main (direct or indirect) shareholders in the rated leasing company. A strong major shareholder can be a source of know-how and other support. BCRA assesses the ability of the main shareholder to adequately capitalize the analyzed leasing company.

The management is being analyzed from the viewpoint of its competency, of the management structure created, of the practices applied, and of the existing systems for leasing company management. When appraising the management, the leasing company strategy, the vision of the managers for their business at present, and their forecasts for the future are also reviewed.

BCRA analyzes the operating activity of the rated company in details. The portfolio of the leasing company, as well as the market share and competitive position of the company are reviewed. Reviewed are also the relations of the Company with its counterparts, as well as the risks, which can arise from the agreements made and from the practices applied.

The financial state of the leasing company is an indicator for the overall strength of their business but also a direct source of risk, analyzed in four main areas: Profitability, Operating effectiveness, Indebtedness, and Liquidity. With a view of the specific activity of the leasing companies, the main point in the analysis is set on the management of the interest, currency, liquidity and credit risk, as well as on the risk of the residual activity.

The result from applying the listed above analysis comprises the so-called base rating. The final stage of the calculation of the rating is the potential adjustment of the base rating due to the general sovereign-risk factors, as evaluated by BCRA using the Sovereign Rating Methodology.

The rating “ceiling” is the term used for the upper limitation on the rating caused by sovereign-risk factors. Slightly less limited are the ratings of those subsidiaries whose direct or indirect majority shareholder is a foreign legal entity able in one way or another to make up for the deleterious effects of the local environment. The ceiling of local subsidiaries would surpass the sovereign rating by one or more notches, which in turn cause their final rating to surpass the sovereign rating. BCRA could also issue a national-scale rating to entities or issues which is relative, in comparison to other rated entities in the country, taking into consideration only the specific risk factors of the entities and not the effect of the local environment on them.

Credit Analyst

Advisors, Analysts, Associations, Books, Certifications, Experts, Regulations

Oliver Everling, Jens Leker and Stefan Bielmeier (editors): Credit Analyst, De Gruyter Oldenburg, Walter de Gruyter GmbH, Berlin / Boston, http://www.degruyter.com/, updated and completely revised edition, 3rd edition 2015, 390 pages, ISBN 978-3-11-035379-2.

The escalation of the financial crisis has brought changes in hardly any other area as quickly as in the credit analysis. Basel’s banking regulatory requirements set new framework conditions for banks’ lending business after the financial crisis. At the same time, a variety of credit products have become increasingly important on the capital markets, from corporate bonds to securitisations. The credit and capital markets are growing ever closer together in the globalization process. Credit risks must be analyzed and managed – in banks as well as on the capital market, with both institutional and private investors. More professionalism protects market participants from the consequences of credit crises.

The postgraduate program CCrA® offers a comprehensive and practice-oriented qualification for banking and capital market credit experts.

The topics range from instruments for the analysis of individual risks to methods of active credit portfolio management. Important topics in the areas of banking regulation and credit research are also covered. In addition, the established rating agency Standard & Poor’s will give a hands-on insight into how they work in a workshop for Classic participants. Practical case studies and eSeminars complete the program. The compact program structure is designed for in-service participation and enables efficient qualification in just five months. Graduates hold the title CCrA® – Certified Credit Analyst.

Oliver Everling, Jens Leker und Stefan Bielmeier (Herausgeber): Credit Analyst, De Gruyter Oldenbourg, Walter de Gruyter GmbH, Berlin/Boston, http://www.degruyter.com/, aktualisierte und vollständig überarbeitete Ausgabe, 3. Auflage 2015, 390 Seiten, ISBN 978-3-11-035379-2.

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Boat Rating System

Agencies, Associations, Read, Systems

When searching for the term “rating system”, you might come across a rating system for boats. Boats of different sizes and characteristics would not have an equal chance to win in races. The rating system for boats shall correct their elapsed time difference and put them on the same level. Boat owners, sailors, designers and handicappers are always looking for solutions that work as boat designs change with time.

Under these circumstances, an ideal rating system is said to have features like fairness to all boats, from cruisers to racers, with no strong typeforms in design, being open, transparent and freely available with rules that are objective, non-biased and open to input. Ratings should be simple, but accurate, have flexible scoring options for use with different course types, be easy to use and understand and be locally managed but available world wide.

Science and technology was used to develop handicap systems. With a complete set of measurement of the hull with appendages, propeller, stability, rig and sails, it is then possible to use computer software to calculate the theoretical speeds for the boat in various wind conditions. Experts in aero and hydrodynamic science are involved to tell you the performance differences between different boats in different wind conditions and course geometries.

Some tough questions can be answered with the rating system, such as at what wind speed and wind angle will the asymmetric spinnaker be faster than the jib or genoa while reaching. The rating system does not compare the characteristics of one boat to another; it measures how a racing crew can reach their boat’s theoretical performance potential. Such a system can only indirectly affect investment in boats.

The rating systems have no secret factors, everything is calculated and documented, and is available to an even broader audience. The boat rating systems are based on science and complete boat measurement with no guessing or any subjective element. The system helps to understand the theoretically possible performance of boats and to some extent also influence the choice of a boat. The boat rating systems are administered by national rating offices established worldwide in each country that has active offshore rating.