EBA欧洲银行-EBA-ITS-2013-09-28Draft-finalITS-on-closely-correlated-currencies29_24页_421kb

EBA FINAL Draft Implementing Technical Standards on Closely Correlated Currencies

Core Content Overview

This document outlines the European Banking Authority (EBA)'s draft Implementing Technical Standards (ITS) on closely correlated currencies under Article 354(3) of the Capital Requirements Regulation (CRR), Regulation (EU) No 575/2013. The ITS aim to harmonise the identification of closely correlated currencies across the European Union (EU) and adjust capital requirements accordingly.

Main Objectives and Key Points

• Capital Charge Adjustment: Closely correlated currency pairs are subject to a 4% capital charge instead of 8%, reflecting lower risk.
• Definition of Closely Correlated Currencies: A pair of currencies is considered closely correlated if the probability of a loss below 4% over a 10-day period is at least 99% (for a 3-year observation period) or 95% (for a 5-year observation period).
• Methodology: To assess this, the EBA scales down the 10-day loss to a 1-day loss by dividing the 4% threshold by the square root of 10, resulting in a 1.265% daily threshold.
• Breach Calculation: The number of breaches (exceeding the 1.265% threshold) is capped at 7 breaches over 3 years (1% of 780 daily P&L changes) and 65 breaches over 5 years (5% of 1300 daily P&L changes). These numbers are rounded down for prudential reasons.
• Annual Review: The list of closely correlated currencies is updated annually, incorporating new data and currencies that may become relevant. A natural year of data (from 1 October of the previous year to 30 September of the current year) is used for this assessment.
• Urgent Updates: In exceptional market conditions, an urgent update may be initiated to remove a currency pair from the list of closely correlated currencies.

Key Information

1. Currencies Assessed

The EBA has identified the following currency pairs for assessment under Article 354(1) of the CRR:

EU Currencies:

• Euro (EUR)
• Bulgarian Lev (BGN)
• Croatian Kuna (HRK)
• Czech Koruna (CZK)
• Danish Krone (DKK)
• Hungarian Forint (HUF)
• Lithuanian Litas (LTL)
• Polish Zloty (PLN)
• Romanian Leu (RON)
• Swedish Krona (SEK)
• British Pound (GBP)

Non-EU Currencies:

• US Dollar (USD)
• Japanese Yen (JPY)
• Swiss Franc (CHF)
• Norwegian Krone (NOK)
• Russian Rouble (RUB)
• Turkish Lira (TRY)
• Australian Dollar (AUD)
• Brazilian Real (BRL)
• Canadian Dollar (CAD)
• Chinese Yuan (CNY)
• Hong Kong Dollar (HKD)
• Indonesian Rupiah (IDR)
• Indian Rupee (INR)
• South Korean Won (KRW)
• Mexican Peso (MXN)
• Malaysian Ringgit (MYR)
• New Zealand Dollar (NZD)
• Philippine Peso (PHP)
• Singapore Dollar (SGD)
• Thai Baht (THB)
• South African Rand (ZAR)
• Israeli New Shekel (ILS)
• Chilean Peso (CLP)
• Serbian Dinar (RSD)
• FYROM Denar (MKD)
• Albanian Lek (ALL)
• Bosnia and Herzegovina Mark (BAM)
• Arab Emirates Dirham (AED)
• Taiwanese Dollar (TWD)
• Lebanese Pound (LBP)
• Peruvian Nuevo Sol (PEN)
• Colombian Peso (COP)
• Uruguayan Peso (UYU)
• Macau Pataca (MOP)
• Moroccan Dirham (MAD)
• Angolan Kwanza (AOA)

2. Exclusions and Special Cases

• ERM II Currencies: Currency pairs involving Danish Krone (DKK) and Lithuanian Litas (LTL) against the euro are excluded from the assessment under Article 354(4) of the CRR, as they are treated separately.
• Pegged Currencies: These are not treated differently and are assessed as free-floating currencies due to the potential for rapid reversal of exchange rates.

3. Methodology for Currency Movement Calculation

• The daily percentage change in exchange rates is calculated using the formula:
  $$
  % \text{Change} = \ln(\text{exchange}t) - \ln(\text{exchange}{t-1})
  $$
• This change is compared to the 1.265% threshold.
• Breaches are counted when the daily change exceeds this threshold.

4. Regulatory Process

• The list of closely correlated currencies is updated annually, typically during the fourth quarter of the year.
• Urgent updates are allowed if there is a sudden change in market conditions that suggests a currency pair no longer meets the correlation criteria.
• The final regulation is expected to enter into force 20 days after publication in the Official Journal of the European Union and is binding across all EU member states.

5. Accompanying Documents

• Cost-Benefit Analysis / Impact Assessment: Highlights the need for harmonisation and the benefits of a standardised approach.
• Views of the Banking Stakeholder Group (BSG): Reflects industry feedback and considerations.
• Feedback on Public Consultation: Includes responses to the draft ITS and the BSG opinion.

Conclusion

The EBA's draft ITS provide a harmonised framework for identifying closely correlated currencies and adjusting capital requirements accordingly. By using a 1.265% daily threshold and annual updates, the regulation ensures that capital charges are more risk-sensitive, aligning the standardised approach with internal models. The inclusion of an urgent update process allows for flexibility in response to market changes, while the exclusion of certain ERM II pairs reflects specific regulatory treatment.