EBA · 2018_4142 Final Q&A

Closely correlated currencies

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
354, para. 1
Topic
Market risk
Submitted by
Credit institution
Submitted
2018-07-19
Answered
2020-05-08
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

How to manage the closely correlated currencies according to Article 354(1) CRR under the standardised approach?

Background

Assume that the institution has EUR (long) and BGN (short) positions. The local and reporting currency is HUF. In this case, would the institution be able to match the EUR and BGN positions and apply a 4% capital charge according to the Annex 1 of the Implementing Technical Standards (ITS) on closely correlated currencies? Or the institution only need to consider those foreign currencies which are closely correlated to the reporting currency (HUF)?

Answer

The treatment for closely correlated currencies set out in Article 354(1) of Regulation (EU) No 575/2013 (CRR), is irrespective of an institution’s reporting currency. To illustrate the example provided, assume the institution has a long net open position in EUR of 100 and a net short open position in BGN of -80 (after converting at spot to the institution’s reporting currency), and that EUR and BGN are determined to be closely correlated. The matched position between EUR and BGN is therefore 80. This means that 80 of the overall net foreign-exchange position (100) calculated under CRR Article 352 may be multiplied by 4 % and not by 8 %. Please also refer to Q&A 2015_2139 .

Original source: European Banking Authority, Q&A ID 2018_4142

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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