Submission #2

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Austrian Federal Economic Chamber, Division Bank and Insurance

Q1. Would you consider beneficial to limit the S-FX provision to hedge the CET1 ratio aiming at creating a level playing field in the EU? Please provide a rationale.

Currently, we do not see it beneficial to limit the provisions to hedging the CET1 ratio as it would confine the scope contrary to the CRR. The CRR explicitly states that the positions shall be taken to “hedge against the adverse effect of the exchange rate on its ratios in accordance with Article 92 (1)”. Therefore, a restriction to hedging the CET1 ratio would not be in line with the CRR, rendering it void. Within banking groups, some entities might issue capital instruments in the local currencies. The FX risk stem-ming from these positions needs to be managed from a group perspective.

Institutions should be free to decide which capital ratio they choose. Despite of the bank’s internal strategy and the composition of the balance sheet, the targeted ratio defines also the amount of maximum position to be exempted and consequently the size and hedging strategy for remaining open positions. Choosing CET1 ratio gives the smallest amount for MaxOp and therefore the highest amount of remaining Open Position to be hedged. Hedging strategy and size of hedges will be influenced by market liquidity, cost of hedging (negative carry) and risk estimation in the respective currency.

Q2. Which of the three ratios is your institution hedging? -

Q3. For how many and for which currencies do you currently have the permission to exclude some positions from the corresponding net open position? For how many and for which currencies do you plan to request the permission following the adoption of these guidelines?

From our perspective, using only 3 material currencies as a starting point is too restrictive.
We expect that at least 5 currencies will be in scope of a request for permission. Thus, we would suggest to change the wording in para 19 accordingly and generally extend the scope.

The decision on which and how many currencies banks are planning to request permission depends on whether the JST will invoke the current permission. If they do invoke the permission because of changes in the framework, banks will probably (re-)apply for RUB, CZK, RON, HUF, HRK, UAH, ALL, BAM, BGN, RSD, BYN.

Although, banks currently comply with requirements requested by the authorities, banks have a diverging legal opinion regarding on the necessity of including all assets into the calculation of the net open position. Please see legal opinion above.

Q4. Could you please provide the list of the 10 most material currencies if the materiality of a currency were assessed in accordance with measure A and measure B? Please provide also the value taken by measure A and measure B for those currencies. Measure A: percentage of the open position in the foreign currency (without considering any waiver) with respect to the open position in the reporting currency. Measure B: percentage of the open position in the foreign currency (without considering any waiver) with respect to the total own funds of the institution. -

Q5: Do you deem the provision included in paragraph 25 clear or do you think it could lead to a different interpretation than the one outlined in the text above included in the box? Please elaborate. No comments, paragraph 25 seems to be reasonably clear.

Q6: Are the structural positions for which you plan to ask the permission mainly positions of type A (i.e. meeting the condition in the paragraph above), or positions of type B? Could you please provide a rough estimation of the percentage of positions of type A on the total foreign-exchange position that you will potentially include in the request to the competent authority? For example, if the institution plans to request to exclude a net position = 100, and 80 of such net open position is due to positions of type A, then the percentage of positions of type A on the total foreign-exchange position that the institution will potentially include in the request to the competent authority is 80%. -

Q7. Could you please provide the percentage of the net open position that you plan to request to exclude with respect to the net open position that your institution has without any waiver? -

Q8. Do you agree with the exclusion of positions that are not eligible to be structural from the sensitivity that is used for assessing the intention of the institution to hedge the ratio, or would you prefer to have those positions included although they cannot be exempted? Please elaborate.