EBA · 2014_1413 Rejected question

Balance Sheet Netting as a CRM technique

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
195, 219
Topic
Credit risk
Submitted by
Credit institution
Submitted
2014-08-04
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Question

Is Balance Sheet Netting according to Article 195 limited to Cash Balances in the same currency?

Background

Article 195  CRR recognises on-balance sheet netting as an eligible form of credit risk mitigation, if a valid netting agreement exists (requirements of Article 205 are met). However, Article 219 which shows the calculation of on-balance sheet netting effects is limited to positions denominated in the same currency. There is no mentioning of how netting should be applied, if currencies do not match. Our assumption is, that in case the currencies do not match, the institution has to apply a haircut for the involved FX-Risk. On the other hand, Article 219 could be read as if on-balance sheet netting is limited to balances in the same currency. In the latter case this would be contrary to Article 195 which per se sees on-balance sheet netting as a valid CRM-technique.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2014_1413

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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