Hedging policy (treasury policy)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A hedging policy is a business's written, board-approved rule for managing its interest rate and currency risk: which exposures it hedges, what share of each it covers over which horizon, which instruments it may use and with whom, who may deal, and how results are reported. A bank reads it for three things: whether the business actually follows it, whether it allows only hedges matched to real exposures, and whether its bands fit any hedging condition in the facility. Cover that drifts outside the policy without a board decision tells the bank more about the treasury than the policy does.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.