Asset encumbrance

The Asset encumbrance (AE) report is designed to provide transparency into the extent to which an institution’s assets are pledged as collateral, impacting its liquidity and financial stability. Its primary purpose is to help regulators, investors, and management assess the institution’s liquidity risk and financial health by detailing the proportion of assets that are encumbered. The AE report is mandated as a Basel Disclosure Requirement (DIS 31) and by regulatory frameworks such as CRR & related delegated acts, which outline the standards for reporting and maintaining transparency about asset encumbrance.

The report is structured as follows:

• Encumbrance Overview: Provides an overview of the institution’s encumbered assets.
• Maturity data: Details the maturity profiles of encumbered assets and liabilities.
• Contingent encumbrance: Covers details of potential future encumbrances.
• Covered bonds: Information on covered bonds issued by the institution.

Supervisors may require further breakdowns by transaction type and into different unencumbered asset categories. The EBA released a Consultation Paper for the ITS on Supervisory Reporting regarding COREP, AE and GSIIs released in June 2021, which aimed to streamline AE reporting for small and non-complex institutions. Such entities are now exempted from reporting more granular data due to the previously cumbersome nature of the report.