The much publicised foreign exchange losses suffered by a number of leading banks in 1974 provided some salutary lessons and aroused sudden widespread interest in possible official limits on banks' foreign exchange positions. Some central banks or regulatory authorities subsequently introduced new controls on such positions. In the United Kingdom, however, exchange control has imposed limits on banks' positions since foreign exchange markets generally reopened in the autumn of 1951. The limits in their present form date from early 1959, shortly after the return to general non-resident convertibility, and apply to all banks authorised by the Treasury to deal in foreign currencies.
Limits on foreign exchange business are applied by the banks in at least three different areas - currency exposure, maturity mismatching, and credit risk. This article deals only with official limits on currency exposure, but these are supplemented by banks' own internal limits in all three areas.
Limits on UK banks foreign exchange positions