QUALIFICATION OF INVESTMENT IN FOREIGN TRADING SUBSIDIARY

Could the EBA confirm that a long position in foreign currency, say in USD (while the Bank’s reporting currency is EUR), stemming only from the Bank’s investment in a trading subsidiary in the US, can be qualified as structural?

Let’s assume that a subsidiary reporting in USD: has invested fully its equity in trading book business, and that such business is made exclusively in USD and does not create any FX position locally; and has no banking book transactions with external counterparts. Hypothetical balance sheet of the US subsidiary: Value in cv EUR Value in cv EUR Assets in USD (TB) 100 CET1 in USD 100 Hypothetical balance sheet of the mother company: Value in cv EUR Value in cv EUR Investment in the subsidiary in USD (BB) 100 Assets in EUR (BB) 900 CET1 in EUR 1 000 Hypothetical balance sheet of the consolidated Group: Value in cv EUR Value in cv EUR Assets in USD (TB) 100 Assets in EUR (BB) 900 CET1 in EUR 1 000 The investment in such subsidiary creates a long USD position at Group level of cv EUR100. It should be considered that this long USD position can be qualified as structural, according to article 27 (b) of the EBA Guidelines: “The following positions should be considered as positions of a structural nature: (…) (b) where the institution requesting the permission referred to in Article 352(2) of Regulation (EU) No575/2013 applies the requirements of that Regulation on a consolidated basis, a position for which both of the following conditions are met: (i) it stems from an investment in a subsidiary that has been included in the consolidation; (ii) the currency of the position coincides with the reporting currency used by the subsidiary holding the item to which such position corresponds.”