Determination of the appropriate currency to be used for calculating the base for grandfathering and phase-out limits

Can the base for grandfathering and phase out limits be calculated in the currency that the instrument eligible for grandfathering is denominated in?

On the basis of the formula given in Article 486(4) of Regulation (EU) No 575/2013 (CRR), the institution calculates the base to which phased-out limits refer, the so-called 'base for grandfathering'. Over the next 10 years this base will be used to calculate the maximum amount of subordinated debt that can be classified as Tier 2 despite its non-compliance with criteria set out in Article 63. Due to the fact that the institution’s subordinated instruments are denominated in CHF in order to avoid the volatility of the maximum amount (resulting from fluctuations in foreign exchange rate CHF/PLN), the base shall be denominated in CHF. The reason for this is that the subordinated debt was issued to finance mortgage loans also granted in CHF. This 'natural hedge' reduces the volatility of the capital adequacy ratio. However, when the base for grandfathering is fixed in the bank's reporting currency (PLN), the benefit of this 'natural hedge' is eliminated. In such a case although the Tier 2 capital as well as capital charge are calculated in reporting currency, so that they co-move together with FX rate fluctuations, the absolute limit for grandfathering is fixed and does not change with FX rate movements.