EBA · 2022_6367 Question under review

Exposure class for fair value changes of the hedged items in portfolio hedge of interest rate risk

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
112
Topic
Credit risk
Submitted by
Credit institution
Submitted
2022-02-11
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

To which exposure class the 'fair value changes of the hedged items in portfolio hedge of interest rate risk' (recorded in the IFRS consolidated financial statements in accordance with (IAS 39.89A(a); IFRS 9.6.5.8) have to be assigned?

Background

The recorded exposure relates to a bottom layer macro fair value hedge of mortgage loans. Due to the application of the bottom layer macro fair value hedge approach there is no individual allocation of the exposure value of the hedged item to the individual mortgage loans. Should this exposure be treated as an 'exposure secured by mortgages on immovable property' or as 'other items', and subsequently, which risk weight should be applied to this exposure. The 'fair value changes of the hedged items in portfolio hedge of interest rate risk' (recorded in the IFRS consolidated financial statements in accordance with (IAS 39.89A(a); IFRS 9.6.5.8) is an accounting correction to the hedged item recorded for a bottom layer macro fair value hedge. The exposure is therefore related to the mortgage loan exposures which are allocated to 'exposure secured by mortgages on immovable property', but cannot be individually assigned to the individual mortgage loans. Therefore it is unclear to which exposure class it has to be assigned and which risk weight has to be applied.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2022_6367

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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