EBA Q&A 2013_160

This is a follow up question to Q&A 2013_160 . A matched (hedged) FX position will result in four cash flows; an inflow in currency 1 and an outflow in currency 2 with counterpart A and an opposite outflow in currency 1 and an inflow in currency 2 with counterpart B. At an all currency LCR level the inflow and outflow with counterpart A can be netted in line with 422(6) and the inflow and outflow of counterpart B can be netted in line with 422(6), giving rise to a net position with each couterpart which will be a very small FX translation difference; one will be a small inflow with one counterpart and one a small outflow with the other counterpart. However at a single currency level the off-setting cashflows are in the same currency, but are not with the same counterpart, and so strictly under LCR rulles they can not be netted. They will therefore be reported gross as an inflow with one counterpart and outflow with the other counterpart, but the inflows will be subject to the 75% cap of outflows in each currency LCR if the 75% cap on inflows apply to both the all currency and the single currency. This will give rise to the sum of the individual currency LCRs showing a worse position than the all currency combined and we question if this is the intended outcome.

EBA Q&A 2013_160