Derivation of the formulas for an institution hedging the CET1 ratio
The reasoning below is presented in the context of an institution applying for the structural FX treatment to recognise the hedging effect of FX positions on the CET1 ratio.
For the purpose of calculating the maximum open position (
), as described in the background section, institutions should exclude the own funds requirements for FX risk (FX - OFR) for all positions in the currency of the positions for which they seek the waiver from the total risk exposure amount, as defined in Article 92 of the CRR. Accordingly, the ratio to consider for calculating the maximum open position ( 
) is defined as:
where:
CET 1 is the Common Equity Tier 1, as defined under Part Two -Title I of the Capital Requirement regulation (CRR);
is the total risk exposure amount, as defined in Article 92 of the CRR, excluding the FX - OFR for the currency of the positions for which the institution seeks the waiver.
Making explicit the dependen
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