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Cross-Currency Interest Rate Swap in the Context of the Calculation of Capital Adequacy of Banks with Foreign Currency Mortgages (Cross-currency interest rate swap w kontekscie rachunku adekwatnosci kapitalowej banków posiadajacych walutowe kredyty hipoteczne)

Author

Listed:
  • Jan Kolesnik

    (Szkola Glowna Handlowa w Warszawie, Instytut Bankowosci)

Abstract

Polish banks have a large long currency position resulting from the portfolio of foreign currency mortgages, which they secure mainly using FX swaps and cross-currency interest rate swaps (CIRS). The purpose of this paper is to show how to take CIRS, which is one of the most popular methods of hedging against risk of CHF mortgages, into account in the calculation of capital adequacy. The paper also tries to answer the question whether the conversion of foreign currency mortgages will lead to changes in the treatment of CIRS in the calculation of capital adequacy of banks. The author points out that the conversion of part or all of the portfolio will eliminate the possibility for CIRS to be counted in the non-trading book and therefore a bank, instead of the capital requirement for credit risk, will have to set capital requirements for counterparty risk and position risk.

Suggested Citation

  • Jan Kolesnik, 2015. "Cross-Currency Interest Rate Swap in the Context of the Calculation of Capital Adequacy of Banks with Foreign Currency Mortgages (Cross-currency interest rate swap w kontekscie rachunku adekwatnosci k," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 13(55), pages 158-169.
    • Handle: RePEc:sgm:pzwzuw:v:13:i:55:y:2015:p:158-169
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    File URL: http://pz.wz.uw.edu.pl/sites/default/files/artykuly/pz_2015_3_2_kolesnik.pdf
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    More about this item

    Keywords

    capital adequacy; CIRS; FX mortgages;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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