EBA欧洲银行-BSG-response-to-EBA-Discussion-Paper-on-the-Treatment-of-Structural-FX-28EBA-DP-2017-0129_22-September-2017_8页_205kb

EBA Banking Stakeholder Group Summary on Structural FX Treatment

Core Content

The EBA Banking Stakeholder Group (BSG) has provided detailed comments on the EBA Discussion Paper regarding the treatment of structural foreign exchange (FX) positions. The BSG supports the alternative view outlined in the paper, which excludes historic cost instruments from the overall net FX position. This approach is seen as more appropriate for managing FX risk in a way that protects capital amounts rather than capital ratios.

Main Views

• Exclusion of Historic Cost Instruments: The BSG supports the exclusion of historic cost instruments from the net FX position, as these instruments are typically funded in the functional currency (EUR) and do not create FX liabilities or P/L volatility. They are not intended to hedge FX rate fluctuations but rather to protect capital amounts.

• Clarification of Ambiguous Wording: The BSG suggests that the CRR text should clarify the ambiguous wording between Article 325c(1a) and 325c(2), particularly regarding the time horizon for the application of structural FX provisions. They emphasize that the bank should be able to define this time horizon, which should be at least six months to reflect the non-trading nature of such positions.

• No Dependency Between FX Own Funds and Structural FX Treatment: The BSG agrees that the determination of the net FX position and the structural FX exclusion should not be dependent on the approach for calculating FX own funds requirements. They highlight that the interaction between internal models and back-testing is unclear and that inconsistencies may arise from including or excluding hypothetical positions.

• Structural FX Treatment for Non-Trading Positions: The BSG supports the inclusion of trading book FX positions that have a non-trading or structural nature, such as those arising from investments in subsidiaries or branches where the FX exposure is not intended for trading. They argue that such positions should be treated as structural if they are aligned with the institution's hedging strategy and policies.

• Hedging Strategy and Instruments: The BSG believes that structural FX treatment should apply to positions (assets, liabilities, derivatives) denominated in foreign currency. They advocate for the use of simple instruments like FX-Spot for hedging, as more complex instruments like options may introduce time-dependent effects that require frequent adjustments.

• Definition of Structural FX Position and Hedge: The BSG defines a structural FX position as a net open position that is maintained for the purpose of reducing the sensitivity of the capital ratio to FX movements. They emphasize that the choice of hedging strategy should be based on the bank's risk management approach and that the competent authority should assess the bank's policy during the application process.

• Consolidated vs. Individual Treatment: The BSG notes that there is no substantial difference in the treatment of FX positions between branches, subsidiaries, and holding entities. They suggest that FX structural positions should be allocated across entities to maximize the efficiency of the hedge at consolidated, subconsolidated, or solo levels.

• Assessment of CRR2 Proposals: The BSG finds the proposed amendments to the CRR2 text of the structural FX article to be too restrictive and ambiguous. They argue that the maximum FX position should be determined based on the bank's strategy for protecting the capital ratio, not limited to the minimum capital ratio levels. They also suggest that the application of structural hedges should not be restricted to affiliated entities and consolidated subsidiaries.

Key Information

• Structural FX Position: Should be defined as a net open position maintained to reduce the sensitivity of the capital ratio to FX movements.

• Hedging Instruments: Should be simple and plain vanilla, such as FX-Spot, to avoid time-dependent effects and ensure consistency in risk management.

• Time Horizon: The bank should be able to define the time horizon for the application of structural FX provisions, with a minimum of six months to reflect the non-trading nature.

• Capital Ratio Protection: The structural FX treatment should allow for partial or full protection of the capital ratio, depending on the bank's strategy, without being restricted to perfect hedges.

• Consolidation Considerations: FX structural positions should be integrated across entities, and the treatment of subsidiaries and branches should be consistent with that of the parent institution.

• CRR2 Amendments: The proposed amendments are seen as too restrictive and ambiguous. The BSG recommends that the maximum FX position should be based on the bank's strategy rather than minimum capital levels.

Conclusion

The BSG advocates for a flexible and consistent approach to the treatment of structural FX positions, emphasizing the importance of protecting capital amounts and the need for clarity in regulatory texts. They support the exclusion of historic cost instruments and the use of simple hedging instruments to manage FX risk effectively.