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The main drivers of the impact on the volatility of own funds were found to relate to internal factors, such as the existence of defined benefit plans, their characteristics and their size compared to the capital position of the institution, as well as to external factors, such as the evolution of macroeconomic variables to the institution.
The EBA also highlighted that during periods of downturn, own funds may be adversely impacted due to the increase of actuarial losses and therefore leading to an increase of defined benefit pension fund deficits. However, the EBA specified that it would be a prudent approach to fully recognise these losses on own funds, as this would immediately reflect the adverse impact on own funds rather than deferring it to future periods.
The EBA finally suggested that institutions with relevant defined benefit pension plans should carefully consider the possibility of losses arising from such plans and hence incorporate them in their capital planning. This shall allow institutions to secure sufficient capital to withstand losses that could originate from these plans.