Example 1: Fixed IR asset changed to floating with an IRS – IRS floating receiver and fixed payer - Representation in J 05.00, J 06.00 and J 07.00
Let us consider a scenario where the fixed rate asset (hedged item) is a mortgage loan that perfectly matches, in terms of notional amount and financial characteristics, the receive leg of an interest rate swap (IRS).
According to the Q&A:
For the receive leg, the notional amount must be reported in column 0260, under rows 0140 to 0170. The weighted average yield should be reported with a positive sign in column 0300, and the corresponding repricing cash flows should be reported with a positive sign in columns 0320 to 0390, all under rows 0140 to 0170.
For the payer leg, the notional amount should not be reported. The weighted average yield must be reported with a negative sign in column 0050, and the associated repricing cash flows must be reported with a negative sign in columns 0070 to 0250, again under rows 0140 to 0170.
Could you please clarify how potential asymmetries should be addressed in cases where the notional amount of the payer leg of the IRS is not reported, which may lead to both the fixed rate exposure of the hedged item and the floating rate leg of the hedging derivative being simultaneously recognized, potentially distorting the risk exposure at the total assets level?
Example 2: Floating IR liability changed to fixed with an IRS – IRS floating receiver and fixed payer - Representation in J 05.00, J 06.00 and J 07.00
Let us consider a scenario where the floating rate liability (hedged item) is a debt security that perfectly matches, in terms of notional amount and financial characteristics, the receive leg of an interest rate swap (IRS).
According to Q&A:
For the receive leg, the notional amount must be reported with a positive sign in column 0260, under rows 0140 to 0170. The weighted average yield should be reported with a negative sign in column 0300, and the corresponding repricing cash flows should be reported with a negative sign in columns 0320 to 0390, all under rows 0140 to 0170.
For the payer leg, the notional amount should not be reported. The weighted average yield must be reported with a positive sign in column 0050, and the associated repricing cash flows must be reported with a positive sign in columns 0070 to 0250, again under rows 0140 to 0170.
Could you advise on how institutions should address potential asymmetries arising in cases where the notional amount of the receive leg of the IRS is reported with a positive sign, while the notional of the payer leg is not reported (i.e., reported as zero), potentially resulting in the simultaneous recognition of both the floating rate exposure of the hedged item and the floating leg of the hedging derivative?
Example 3: Other Interest rate derivatives not designed as accounting hedges – IRS floating receiver and fixed payer - Representation in J 05.00, J 06.00 and J 07.00
Could you provide guidance on how institutions should address potential asymmetries arising in cases where only the receiver leg of an IRS transaction is reported, potentially resulting in an incomplete representation of the associated risk exposure?
Example 4: Fixed USD asset changed to fixed EUR with a CCS USD fixed payer / against fixed EUR receiver - Representation in J 05.00, J 06.00 and J 07.00
In this example, we report the same observations as in Example 1, considering the fixed exposure represented in EUR and USD templates.
In addition, we would appreciate confirmation regarding the appropriate representation of the average yield. Specifically, should the yield of the payer fixed USD leg be reported under template J 05.00 in EUR, as indicated in the official Q&A, or under J 05.00 in USD?
- Legal act: Regulation (EU) No 575/2013 (CRR)
- COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)
