EBA · 2024_7146 Rejected question

Internal hedges in the market risk thresholds computation

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
106, para. 1
Topic
Market risk
Submitted by
Consultancy firm
Submitted
2024-07-12
Browse ECB SSM Register → More Q&As on this regulation →

Question

Should internal hedges be included in calculation of the size of institution's on- and off-balance-sheet business that is subject to market risk?

Background

When an internal hedge recognised in accordance with the first subparagraph of article 106 it shall be included in the trading book for the purpose of calculating the own funds requirements for market risk. However, in the thresholds calculated to verify compliance with the conditions laid down in Article 325a for the use of simplified methodologies, both the value of internal and external hedge are taken into account as the positions are of opposite sign (long and short) and therefore taken in absolute value and added together. As a result, there is an increase in the value of the trading book and thus a greater chance of breaching the thresholds for a bank that hedges its banking risk via IRT than for a bank that does not.  Would it not be more correct to count only the external derivative in the thresholds?
No answer published yet.

Original source: European Banking Authority, Q&A ID 2024_7146

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.

Similar Q&As

Treatment of CIUs in internal model for market risk – possible restrictions

Answered 2020-12-04

Application level of materiality threshold for assessing the materiality of extensions and changes to the IMA

Answered 2017-01-20

Transactions that should be exempted from, and included in, the calculation

Answered 2017-01-31

1424

Answered 2019-09-06

v09821_m, v09823_m - Hedging sets

Answered 2023-01-27

More Q&As on this topic

Application of Article 207(2) of the CRR to financial collateral under the counterparty credit risk framework

Answered 2026-05-29

SPV repack transactions

Answered 2026-05-29

Exclusion of back-to-back positions from RRAO

Answered 2025-10-31

Sources for external classification that is commonly used in the market for grouping issuers by sector, for the purpose of CRR Article 325ah.

Answered 2025-10-17

Multilateral development banks classification for the purpose of article 325ah

Answered 2025-06-27

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

Start free trial → Learn more

14-day free trial. No credit card required.