in force 2025-01-01 MODIFIED+285 −223§
Amended by Regulation (EU) 2024/1623 32024R1623 · Regulation (EU) 2024/2987 32024R2987 · Regulation (EU) 2024/2795 32024R2795
applies from: unchanged
Paragraph 3 no longer refers to capturing material risks between a hedging instrument and the hedged instrument during the interval between the maturity of a hedging instrument and the one-year time horizon, and instead requires institutions to ensure that maturity mismatches between a hedging instrument and the hedged instrument occurring during the one-year time horizon, where not captured in the internal default risk model, do not lead to a material underestimation of risk.
The description of basis risks in hedging strategies retains the listed sources of difference (type of product, seniority in the capital structure, internal or external ratings, vintage and other differences) but drops maturity from that list, as maturity mismatches are now addressed separately.
The final sentence on recognising a hedging instrument only to the extent it can be maintained as the obligor approaches a credit event or other event is unchanged, but paragraph 3 is now split into three separate sentences rather than two.
Cited: Art. 325bo, v1 · Art. 325bo, v2
text before / after
02013R0575-20240709 → 02013R0575-20250101
Article 325bo
Recognition of hedges in an internal default risk model
1. Institutions may incorporate hedges in their internal default risk model and may net positions where the long positions and short positions relate to the same financial instrument.
2. In their internal default risk models, institutions may only recognise hedging or diversification effects associated with long and short positions involving different instruments or different securities of the same obligor, as well as long and short positions in different issuers by explicitly modelling the gross long and short positions in the different instruments, including modelling of basis risks between different issuers.
3. In their internal default risk models, institutions shall capture material risks between a hedging instrument and the hedged instrument that could occur during the interval between the maturity of a hedging instrument and the one-year time horizon, as well as the potential for significant basis risks in hedging strategies that arise from differences in the type of product, seniority in the capital structure, internal or external ratings, maturity, vintage and other differences. Institutions shall ensure that maturity mismatches between a hedging instrument and the hedged instrument that could occur during the one-year time horizon, where those mismatches are not captured in their internal default risk model, do not lead to a material underestimation of risk.
Institutions shall recognise a hedging instrument only to the extent that it can be maintained even as the obligor approaches a credit event or other event.