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23. Nonetheless, because such reporting might well lead to a reduction in the capital charge for market risks by allowing positions in different affiliates to offset, supervisors need to be alert to the possible understatement of risk. This may occur, for example, where there are obstacles to the repatriation of profits from a foreign subsidiary, where there are potential tax liabilities or where a bank's ownership is less than 100%. In such circumstances, supervisors would be expected to demand that the individual positions be taken into the measurement system without any offsetting against positions in the remainder of the group. Moreover, all supervisory authorities would retain the right to continue to monitor the market risks of individual entities on a nonconsolidated basis to ensure that significant imbalances within a group do not escape supervision.
24. The Committee is well aware that banks can reduce positions at the close of business by engaging in a transaction with an affiliate in a later time zone (i.e. "passing". its position). This may be a perfectly legitimate device to enable banks to manage their positions continuously to reduce intragroup imbalances. If all positions were measured at the same moment in time no problem would arise. In practice, however, reporting is likely to take place on the basis of accounts drawn up at the end of a business day and it is possible, by passing a position continuously west and over the dateline, for an exposure to escape reporting altogether. Supervisors will, therefore, be especially vigilant in ensuring that banks do not pass positions on reporting dates to affiliates whose positions escape measurement or across the international dateline.
Footnotes:
9. The positions of less than whollyowned subsidiaries would be subject to the generally accepted accounting principles in the country where the parent company is supervised.