Recital 44

(44) Under the alternative standardised approach, exposures to instruments bearing residual risks are subject to a residual risk add-on charge to take into account risks that are not covered by the sensitivities-based method. Under the Basel III standards, an instrument and its hedge can be netted for the purposes of that charge only if they perfectly offset. However, institutions are able to hedge in the market, to a large extent, the residual risk of some of the instruments within the scope of the residual risk add-on charge thus reducing the overall risk of their portfolios, even though those hedges might not perfectly offset the risk of the initial position. To allow institutions to continue hedging without undue disincentives and in recognition of the economic rationale of reducing the overall risk, the implementation of the residual risk add-on charge should allow on a temporary basis, under strict conditions and supervisory approval, for the hedges of those instruments that can be hedged in the market to be excluded from the residual risk add-on charge.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04 · Text as adopted (Official Journal); later amendments are not incorporated in this text.