EBA欧洲银行-EBA-Public-hearing-on-DP-on-structual-FX-250717_13页_757kb

EBA Discussion Paper on the Treatment of Structural FX under Article 352(2) of the CRR

Core Content

This EBA Discussion Paper addresses the interpretation and application of the structural foreign exchange (FX) provisions under Article 352(2) of the Capital Requirements Regulation (CRR). The paper aims to clarify the definition and scope of structural FX positions to ensure consistency and fairness across the European Union's banking sector.

Main Issues and Concerns

• Interpretation Variability: The concept of structural FX is subject to multiple interpretations among supervisory authorities and institutions.
• Uneven Implementation: There is a lack of uniformity in how jurisdictions apply the structural FX provision, leading to potential disparities in capital requirements.
• Impact on Capital Requirements: The treatment of structural FX can significantly affect capital requirements, which may create an uneven playing field.
• Need for Harmonization: The EBA advocates for a single, consistent treatment of structural FX across the EU, both for the provision and the calculation of the net FX position.

Key Definitions and Provisions

Article 352(2) of the CRR

• Allows the exclusion of positions deliberately taken to hedge against adverse FX effects on capital ratios, subject to permission by competent authorities.
• Positions must be of a non-trading or structural nature.
• Applies to positions related to items already deducted in the calculation of own funds.

Basel Definition

• Similar to the CRR, but includes an additional case: positions related to items deducted from capital and long-term participations at historic cost.
• These are also considered as structural FX positions under Basel.

Broader FX Issues

Scope of FX Charges

• FX capital charges apply to both Trading Book (TB) and Banking Book (BB) items under Article 90(3)(c)(i).
• Article 352 does not explicitly address monetary vs. non-monetary items.
• Current BCBS treatment suggests that non-monetary items should be included in the net FX position.

FX Risk Under SA / IMA

• Standardised Approach (SA): Article 352 defines the treatment of structural FX positions.
• Internal Model Approach (IMA): No rules exist in the IMA framework for net FX position calculation or exclusion of structural FX positions.
• CRR2 introduces updated FRTB provisions, but with new restrictions and limitations.

Elements to be Clarified

• Definition of Position: Whether a 'position' can be identified with an 'instrument', or if it stems from a specific instrument.
• Maximum Size of Position: The threshold for what qualifies as a structural FX position.
• Directionality of Position: Whether the position should be defined by its direction (long or short).
• Exclusion Terms: What documentation is required to justify the exclusion of FX positions.
• Hedging Purpose: Whether the position is taken to hedge against FX effects on capital ratios, including the use of options to capture upside potential.
• Capital Ratio Assessment: Which capital ratios (CET1, Tier 1, overall) should be considered for hedging purposes.
• Individual vs. Consolidated Ratios: The need to assess both individual and consolidated capital ratios when evaluating the hedging effect of FX positions.
• Stability of Positions: Whether positions subject to 1.250 Risk-Weighted Assets (RWAs) should be considered stable.

CRR2 Proposal

• Incorporates FRTB provisions but introduces additional restrictions:
  • Exclusion is limited to the largest investment in foreign currency-denominated affiliated or consolidated entities.
  • Excludes positions deducted from capital and other long-term participations at historic cost.
  • Requires the exclusion to remain in place for the life of the assets, which may be problematic for equities.

Conclusion

The EBA emphasizes the need for clarity and consistency in the treatment of structural FX positions under Article 352(2) of the CRR. This includes defining the scope of application, clarifying the nature and criteria of structural FX positions, and ensuring that the treatment aligns with the principles of equal competition and a level playing field across the EU. The CRR2 proposal, while incorporating FRTB, introduces new constraints that require further examination.