FINANCIAL SUPERVISION AUTHORITY
REGULATION 105.15 1 (2) J. No. 6/790/2003 Issued on 18 March 2003 Valid from 15 February 2004 until further notice
MORTGAGE BANKS’ MANAGEMENT OF BALANCE SHEET RISKS
1 APPLICATION
This regulation is applicable to mortgage banks. 2 PURPOSE
The purpose of the regulation is to specify more closely the requirements provided in section 9 a of the Act on Mortgage Credit Banks. In this regulation the structure of the Financial Supervision Authority’s (FSA) new set of regulations has been applied. Later on this regulation will form part of the standard to be issued on market risks. 3 LEGAL BASIS
The FSA’s regulation of mortgage banks’ management of balance sheet risks is based on section 9 a, paragraph 5 of the Act on Mortgage Credit Banks (1240/1999). 4 MORTGAGE BANKS’ MANAGEMENT OF BALANCE SHEET RISKS
Binding
According to section 9 a of the Act on Mortgage Credit Banks, mortgage banks must continuously see to it that the average term to maturity of covered mortgage bonds is shorter than the average term to maturity of their collateral assets entered in the register referred to in section 10. The average term to maturity mentioned above is calculated as the present-valueweighted average of the terms to maturity of a contract’s remaining cash flows. The present value is calculated by discounting the nominal value of the future cash flow to the present time. In the calculation of the average term to maturity, derivative contracts must also be taken into account. Mortgage banks may not, in the course of their activities, expose themselves to refinancing risks to the extent of jeopardising their liquidity (section 66 of the Act on Credit Institutions (1607/1993)). According to section 9 a of the Act on Mortgage Credit Banks, mortgage banks must also continuously see to it that the total amount of interest receivable in any given 12-month period on covered mortgage bonds’ collateral assets entered in the register referred to in section 10 exceeds the total amount of interest payable on such bonds in the same period. In the cash flow calculation of interest payable and receivable for a future 12-month period, the future cash flows of variable rate contracts should be assessed using a documented method approved by the Board of the mortgage bank. The assessment
Further information: Sectoral Analysis Division, tel. +358 9 183 5373 Snellmaninkatu 6 • P.O.Box 159 • FIN-00101 Helsinki • tel. +358 9 183 51 • fax +358 9 183 5328 email address: firstname.surname@rahoitustarkastus.fi www.rahoitustarkastus.fi
Binding
Binding
Binding
Binding
FINANCIAL SUPERVISION AUTHORITY
REGULATION 105.15 2 (2) J. No. 6/790/2003 Issued on 18 March 2003 Valid from 15 February 2004 until further notice
of future interest cash flows on variable rate contracts may for example be based on the forward rate yield curve derived from the interest rate swap yield curve. The total amount of interest receivable for any 12-month period must exceed the corresponding amount of interest payable also when a +/- 1% parallel shift is made to the yield curve used in the assessment of variable rate contracts.
Binding
The mortgage bank must arrange its internal risk reporting so that it can continuously monitor compliance with the requirements provided in section 9 a of the Act on Mortgage Credit Banks and in this regulation. Calculation and reporting is to be performed with minimum one-month intervals. The Board of the mortgage bank must be regularly provided with reports on the management of the balance sheet risks.
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FURTHER INFORMATION
For further information on the contents of the regulation, please contact: Market Risk Unit, tel. +358 9 183 5307
Further information: Sectoral Analysis Division, tel. +358 9 183 5373 Snellmaninkatu 6 • P.O.Box 159 • FIN-00101 Helsinki • tel. +358 9 183 51 • fax +358 9 183 5328 email address: firstname.surname@rahoitustarkastus.fi www.rahoitustarkastus.fi