How should the fair value hedge adjustment amounts be reported in template C 08.01 in Annex I of Regulation (EU) 2021/451? Is it acceptable to report the exposures on row 0170 ‘Exposures from free deliveries applying risk weights under the alternative treatment or 100% and other exposures subject to risk weights’?
Consistently, should EBA validation rules v0330_m, v0333_m, v0334_m, v10312_s and v10485_s be amended in a way not to trigger validation errors in cases where the fair value hedge adjustment amounts get negative values?
Article 24 CRR states that the valuation of assets and off-balance sheet items shall be effected in accordance with the applicable accounting framework. For IFRS-EU, the fair value hedge adjustment for a hedged item adjusts the accounting value of the hedged item. It therefore appears that it should have an impact on the exposure value.
In template C 08.01 row 0010 the total exposures amounts is reported. This total consists of “on-balance sheet items subject to credit risk” (row 0020), “off-balance sheet items subject to credit risk” (row 0030) and “exposures / transactions subject to counterparty credit risk” (rows 0040+0050+0060). Additionally, EBA validation rule v0338_m indicates that sum of rows 0070, 0080, 0160, 0170 and 0180 should reconcile to the total reported in row 0010. For the amounts reported in C 08.01 row 0070 ‘exposures assigned to obligor grades or pools: total’ many EBA validation rules exist, where the value should reconcile to amounts reported in templates C 08.02 and C 09.02.
The fair value changes of the hedged items in a portfolio hedge of interest rate risk will generally be calculated based on the fair value as calculated for that portfolio hedge, meaning that it is calculated as a single amount. Because the fair value hedge adjustment is only available as a single amount, we cannot split it up over the different obligor grades/internal rating scales as is required for C 08.02 and C 09.02. It therefore appears appropriate to report the fair value hedge adjustment amount in C 08.01 on row 0170.
As a result of interest rate changes, the adjustment to the value of hedged asset items might be a negative value. However, the validation rules (v10312_s) and (v10485_s) require the values in C 08.01, c0020, c0090, c0110, and c0260 for rows 0020 and 0170 to be equal to or greater than “zero”. In case an institution has no, or limited amounts of other exposures that are reported in row 0170, it could therefore be that a negative exposure amount is reported on row 0170.
Moreover, the validation rule v0330_m checks that (for rows 0010, 0015, 0016, 0070, 0080, 0160 and 0170) the value in column 0120 of C 08.01.b should be less than or equal to the value in column 0110 of C 08.01.a as column 0120 of C 08.01.b is an 'of which' item of column 0100 of C 08.01.a (i.e. that “of which: off-balance sheet items” is a value equal or smaller than the total of both on-balance sheet items and off-balance sheet items). The validation rule v0333_m does the same for column 0090 of C 08.01.a and column 0100 in C 08.01.b. Similarly, the validation rule v0334_m checks that (for rows 0010, 0015, 0016, 0070, 0080, 0160, 0170 and 0180) column 0130 of C 08.01.b should be less than or equal to the value in column 0110 of C 08.01.a as column 0130 of C 08.01.b is an “of which” item of column 0110 of C 08.01.a. However, in cases where the exposure values reported in c0090 and c0110 of C 08.01.a include negative values – due to negative fair value adjustment amounts which are reported as exposures-, it can create situations where the “of which” amount is larger than the total amount because this total was lowered by the inclusion of a negative amount.
If the fair value hedge adjustment amount should not be included on row 0170 of template C 08.01 additional clarification/guidance is sought how it should be reported in C 08.01 and C 08.02.
This question has been rejected because the matter it refers to is in the process of being answered in Q&A 2022_6367.