EBA publishes final Guidelines on capital measures for FX lending to unhedged borrowers under the SREP

The European Banking Authority (EBA) today published its final Guidelines on capital measures for FX lending to unhedged borrowers under the Supervisory Review and Evaluation Process (SREP). These Guidelines bring forward supervisory convergence across the EU and address the ESRB Recommendation, following their 2011 Report on lending in Foreign Currencies[1], mandating the EBA to draft Guidelines on this specific aspect.

The Guidelines aim to harmonise supervisory practices in EU Member States for addressing the risk associated with FX lending to those borrowers that are considered unhedged. They specify the method to be used by competent authorities when FX lending risk is deemed to be material and also when capital measures are deemed to be an appropriate method of treating this risk.

These guidelines also acknowledge that competent authorities may use other supervisory measures, as outlined in Article 104(1) of the CRD, to address this specific FX lending risk, in case they deem it appropriate.

Following the conclusion of the consultation process in August 2013, the EBA finalised the Guidelines and, where possible, considered and addressed comments received.

These guidelines complement other existing guidelines and technical standards related to the supervisory review process, internal governance, concentration risk, stress testing and home-host supervisory cooperation. They also take into account the provisions of Article 354 of Regulation (EU) No 575/2013 (CRR) and the proposed ITS on closely correlated currencies.

Legal basis and next steps

These Guidelines have been developed pursuant to the Recommendation ESRB/2011/1 of the European Systemic Risk Board (ESRB) report on lending in foreign currencies and will be sent today to the ESRB.