AnaCredit is the Future

While the finer points of AnaCredit, the next credit risk reporting regulation from the European Central Bank (ECB), aren't yet certain, what is certain is that granular credit risk data reporting is here to stay.

AnaCredit represents the future of statistical data collection, from siloed datasets to highly granular, flexible, multi-purpose data available to supervisors and policymakers across the eurozone. So while it is a large project in its own right, AnaCredit is just one step towards a continent-wide reporting framework that is yet a twinkle in the eye of the central banks.

The draft regulation, due at this stage to be submitted by the ECB for approval in October, has been delayed a few times—delays welcome to market participants, who feel that that the project has just gotten more and more complicated. The number of attributes to be reported around loans, for example, began at 40 or 50 after discussion with the industry. This number has now spiralled to more than 100. The European Federation of Bankers has told the ECB that its initial cost and merits exercise is no longer valid because of the increasing complexity.

So the ECB will now try to persuade an unconvinced industry of the benefits that such a database will bring—the business case for banks, even.

AnaCredit's positive impact on stability and growth in the eurozone can be summarized in a number of ways. Monetary policymakers will have better statistics and be able to perform more sophisticated research, leading to growth—for example, by facilitating better credit lines to small and medium-sized enterprises, a key sector of focus for the European Commission's Capital Markets Union project. Supervisors will have a clearer view into financial institutions and inter-bank relationships, without even having to ask banks themselves for sensitive information. AnaCredit regulation could drive adoption of the legal entity identifier (LEI), even among smaller institutions that are not the main focus of LEI efforts.

It's also reasonable to expect that the ECB can realize these benefits: it need only point at the Central Securities Database—a kind of AnaCredit for debt securities—as an example of its experience.

But a more stable and growing eurozone must seem an abstract and long-term vision for pressured financial institutions as they count the costs of the IT proejcts AnaCredit will bring. If done right, implementing AnaCredit reporting will give firms' systems a spring clean; but sprucing up the technology estate does not itself a business case make.

For those institutions already having to report similar-but-slightly-different aggregated credit risk and liquidity calculations, it will be hard to see the value in yet another reporting template, particularly one of this granularity.

The ECB might reason that with highly automated and integrated systems, as required by AnaCredit, banks will end up finding granular reporting easier and cheaper than aggregated reporting. But the fact remains that institutions will still have to do this aggregated reporting, and not only to regulators but also to local central credit registers.

The only way the ECB is going to be able to assuage the concerns of the market is by doing away with redundancy and overlap as much as is possible.