Question
In Article 22 of draft EBA/RTS/2022/10, it stated to apply 50% to profit when aggregating P&L at currency to get total NII. If the stress NII at currency level are all profits (as seen in our calculation under +shocks scenario), do I apply 50% to each profit, or profit in one currency should be allowed 100% (if so, should it be the reporting currency, or any chozen currency)?
Background on the question
I think the rationale of 50% is to offset profit with loss, assuming the correlation between ccy pairs is not 100%. In a simple world, if the whole portfolio has one currency only, then there is no need to apply 50%. So if we apply 50% to each profit, that’s underestimate P&L. This is not covered in the guideline.
Answer
This question has been rejected because the issue it deals with is already explained or addressed in Article 22 of EBA/RTS/2022/09, Article 4(l) of EBA/RTS/2022/10 and the feedback table at page 58 of the final EBA report on the draft EBA/RTS/2022/10. For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.