Question
How a negative amount of fair value changes of hedged items should be reported in template Z02.00?
Background on the question
Due to interest rates increase, the fair value changes of some hedged financial liabilities (e.g., sight accounts, term accounts and saving bonds) to be reported in template Z02.00 can become negative. Please note that in this case, the fair value changes of these liabilities is reported as negative amount in FINREP (F01.02 r0160). As indicated by the Single Resolution Board (SRB) in their answer QA2023-31 - LDR – “Fair value changes of the hedged items in portfolio hedge of interest rate risk” (https://srb-europa.atlassian.net/wiki/x/3YSeBg), the negative amount related to the fair value changes of hedged liabilities should be isolated in template Z02.00, row 0400 Residual liabilities. We would appreciate a confirmation of the above approach.
Answer
Where the amount of “Fair value changes of the hedged items in portfolio hedge of interest rate risk”, corresponding to FINREP F 01.02 row 0160, is negative and is reported separately in template Z 02.00, that negative amount shall be reported in row 0400 “Residual liabilities” in the relevant carrying amount column. The corresponding outstanding amount shall be reported as zero. Under the instructions for template Z 02.00, the outstanding amount represents the principal and accrued interest constituting the claim that the creditor would file in insolvency proceedings. The fair value change arising from hedge accounting does not itself modify that claim. Where a warning validation rule is triggered solely as a consequence of reporting such a negative fair value change in row 0400, this should not prevent submission of the report.