Question
Where wholesale funding issuance is undertaken in a currency which is different to the base reporting currency of the institution, and on issuance is swapped back for the duration of the liability (therefore leaving the institution with no currency risk on the transaction), does this issuance count towards the aggregate liabilities cap for single currency reporting?
Background on the question
Wholesale issuance is often completely hedged back to the reporting currency of the institution, therefore removing any potential liquidity risk resulting from foreign exchange fluctuations. Regulation (EU) No 575/2013 (CRR) provides a cut-off level of 5% aggregate liabilities in a particular currency, but does not define the basis on which "aggregate liabilities" is calculated, and whether completely hedged items are included or not.
Answer
According to Article 415(1) of Regulation (EU) No 575/2013 (CRR), institutions shall provide their liquidity reporting in a single the reporting currency, regardless of the actual denomination of the items reported. In addition, in accordance with Article 415(2)(a) and (b) of the CRR, where an institution has aggregate liabilities in a currency different from the reporting currency as defined under paragraph 1 of this article in Article 411(15) of the CRR, amounting to or exceeding 5% of the institution’s or the single liquidity sub-group’s total liabilities or a significant branch in a host Member State using a currency different from the reporting currency, it shall report separately in that currency the items referred to in Article 415(1). In addition to this, Article 415(2)(c) of the CRR envisages that a separate report for the items denominated in the reporting currency shall be made in that currency where an institution has aggregated liabilities in other currencies than the reporting currencies amounting to or exceeding 5% of the institution’s or the single liquidity subgroup’s total liabilities. Article 415(2)(a) of the CRR does not provide for the use of currency hedges in the calculation of total liabilities. In this regard, institutions shall calculate aggregate liabilities denominated in a currency different from the reporting currency on a gross aggregate basis, meaning that they shall calculate the aggregate liabilities before taking into account the impact of any currency hedges. See further Q&A 160.