185. Institutions should take into account possible significant weaknesses that may be built into …

Institutions should take into account possible significant weaknesses that may be built into internal models with a possible underestimation of currency depreciation in relation to the client’s ability to service its debt, taking into account the following indicative elements:

• a) monetary policies during a crisis period are often focused on stimulating the real economy by significantly decreasing reference interest rates, with potentially misleading information from internal models regarding these indirect effects; and
• b) currency appreciation may be partially offset by falling interest rates and this may cause an underestimation of risk related to foreign exchange lending because, in zero interest rate environments, such a trade-off may not be possible in the long term.

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/