The European Banking Authority (EBA) has published its final guidelines on capital measures for foreign currency lending to unhedged borrowers under the supervisory review and evaluation process.
The guidelines which are addressed to EU national regulatory authorities, aim to harmonise supervisory practices in Member States for addressing the risk associated with FX lending to those borrowers that are considered unhedged (i.e. borrowers without a natural or financial hedge, meaning agents that are exposed to a currency mismatch). The guidelines specify the method to be used by EU national regulatory authorities when FX lending is deemed to be material, and also when capital measures are deemed to be an appropriate method of treating this risk. They provide guidance on both the supervisory review of FX lending governance arrangements, and on capital adequacy, in accordance with article 97 of the CRD IV Directive. The guidelines also recognise the use by EU national regulatory authorities of other supervisory measures, as outlined in article 104(1) of CRD IV Directive, that may be used to address this specific FX lending risk, if deemed appropriate.
The guidelines apply from 30 June 2014. EU national regulatory authorities must notify the EBA whether they comply or intend to comply with the guidelines, or give reasons for non-compliance, by 28 February 2014. Any EU national regulatory authority which fails to notify the EBA by this deadline will be considered to be non-compliant. Notifications will be published on the EBA’s website.