AI Summary of Article 325av Risk weights for foreign exchange risk
This document outlines the application of risk weights to foreign exchange risk factors, notably establishing a baseline risk weight of 15% for all sensitivities. For currency pairs involving the euro and Member States participating in ERM II, alternative risk weights may apply, specifically either a reduction to one-third of the standard weight or the maximum fluctuation within a narrower band agreed upon with the European Central Bank.
Further provisions allow for adjustments based on historical exchange-rate stability and zero bid/ask spreads, permitting a potential halving of the risk weight, contingent upon obtaining express consent from the relevant competent authority.
Article 325av Risk weights for foreign exchange risk
1. A risk weight of 15 % shall be applied to all sensitivities of foreign exchange risk factors.
2. The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in the second stage of the economic and monetary union (ERM II) shall be one of the following:
(a) the risk weight referred to in paragraph 1, divided by 3;
(b) the maximum fluctuation within the fluctuation band formally agreed by the Member State and the European Central Bank, if that fluctuation band is narrower than the fluctuation band defined under ERM II.
3. Notwithstanding paragraph 2, the risk weight of the foreign exchange risk factors concerning currencies referred to in paragraph 2 which participate in the ERM II with a formally agreed fluctuation band narrower than the standard band of plus or minus 15 % shall equal the maximum percentage fluctuation within that narrower band.
4. The risk weight of the foreign exchange risk factors included in the most liquid currency pairs sub-category as referred to in point (c) of 325bd(7) shall be the risk weight referred to in paragraph 1 of this Article divided by √2.