Question ID
2024_7146
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
106
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Name of institution / submitter
Avantage Reply
Country of incorporation / residence
Italy
Type of submitter
Consultancy firm
Subject matter
Internal hedges in the market risk thresholds computation
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 on the question

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?

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the objective of the Q&A tool is not to answer questions that put into doubt the correctness of the legal framework or try to lobby for a modification of the text. 

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts. For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.

Status
Rejected question