Regulation of banks’ foreign exchange risks: new approaches
The Bank of Russia plans changes to the procedure for calculating and setting limits on credit institutions’ open foreign currency positions (OFCP).
The document suggests several innovations. It will establish a new limit on the balance sheet item for certain foreign currencies and precious metals. This amendment will help limit banks’ foreign exchange risks where hedging instruments are unavailable or expensive. The Bank of Russia will set a transition period for ensuring compliance with the limit.
Besides, the changes will reduce excessive burden on banks owing to the alignment of the regulator’s and market participants’ approaches to OFCP calculations.
The document also suggests other changes that will help improve banks’ resilience to foreign exchange risk, considering, among other things, the factors that occurred in 2022. More details about the approaches to regulating foreign exchange risks are available in the presentation.
The draft document has been prepared within the Promising Areas of Banking Regulation and Supervision Development. The Bank of Russia welcomes any suggestions and comments through 27 January 2023.