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  1. Home
  2. Single Rulebook Q&A
  3. 2020_5179 Treatment of interest rate book positions denominated in foreign currency.
Question ID
2020_5179
Legal act
Directive 2013/36/EU (CRD)
Topic
Liquidity risk
Article
84
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
EBA/GL/2018/02 - Guidelines on the management of interest rate risk arising from non-trading book activities
Article/Paragraph
Paragraph 115 lit. (l)
Type of submitter
Competent authority
Subject matter
Treatment of interest rate book positions denominated in foreign currency.
Question
I. According with paragraph 115 (l) of EBA Guideline 2018/02 should minor positions be included or excluded? II. When deciding whether a position is below or above 5% of total non-trading book financial assets or liabilities which value has to be used for the calculation (e.g. book, face or market value)?
Background on the question
Paragraph 115 (l) of EBA Guideline 2018/02 states that, “Institutions should calculate the change in EVE at least for each currency where the assets or liabilities denominated in that currency amount to 5% or more of the total non-trading book financial assets (excluding tangible assets) or liabilities, or less than 5% if the sum of assets or liabilities included in the calculation is lower than 90% of total non-trading book financial assets (excluding tangible assets) or liabilities (material positions).” There are two possible interpretations of this paragraph: 1) Include minor positions in a foreign currency (<5%) in the outlier test and calculate the change in EVE for these positions using the interest rate curve and shift of the domestic currency. As a result, only the currency specific calculation of shock scenarios due to annex III is waived, but all minor positions are reflected in the EVE calculation. 2) Exclude minor positions from the outlier test altogether. What was the intention? When deciding whether a position is below or above 5% of total non-trading book financial assets or liabilities, it unclear which value has to be used for the calculation (e.g. book, face or market value). This question would be even more relevant, if minor positions are completely excluded (question I, option 2).
Submission date
19/03/2020
Rejected publishing date
26/01/2023
Rationale for rejection

The question has been rejected because the legal basis it refers to has been amended and the issue it raises has been clarified in Article 1(3) of the RTS specifying supervisory shock scenarios, common modelling and parametric assumptions and what constitutes a large decline for the calculation of the economic value of equity and of the net interest income in accordance with Article 98(5a) of Directive 2013/36/EU and paragraph 91 of the Guidelines issued on the basis of Article 84 (6) of Directive 2013/36/EU specifying criteria for the management and mitigation of the identification, evaluation, risks arising from potential changes in interest rates credit spread risk, of and of the assessment and monitoring of institutions’ nontrading book activities.

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question

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