Article 10
Downward and upward calibrated shock with the fallback method
1. Under the fallback method, institutions shall determine the downward and upward calibrated shock from the time series of 10 business days returns for a non-modellable risk factor by applying one of the methodologies set out in this Article.
2. Where the non-modellable risk factor is equal to one of the risk factors defined in Part Three, Title IV, Chapter 1a, Section 3, Subsection 1, of Regulation (EU) No 575/2013, institutions shall determine the downward and upward calibrated shock by applying the following steps in the following order:
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(a) |
they shall identify the risk-weight assigned to that risk factor in accordance with Part Three, Title IV, Chapter 1a, of Regulation (EU) No 575/2013; |
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(b) |
they shall multiply that risk-weight by
where:
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(c) |
the downward and upward calibrated shock shall be the result of point (b). |
3. Where the non-modellable risk factor is a point of a curve or a surface and it differs from other risk factors as defined in Part Three, Title IV, Chapter 1a, Section 3, Subsection 1, of Regulation (EU) No 575/2013 only in relation to the maturity dimension, institutions shall determine the downward and upward calibrated shocks by applying the following steps in the following order:
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(a) |
from those risk factors defined in Part Three, Title IV, Chapter 1a, Section 3, Subsection 1, of Regulation (EU) No 575/2013 differing from the non-modellable risk factor only in the maturity dimension, they shall identify the risk factor that is the closest in the maturity dimension to the non-modellable risk factor; |
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(b) |
they shall identify the risk-weight assigned in accordance with Part Three, Title IV, Chapter 1a, of Regulation (EU) No 575/2013 to the risk factor identified in accordance with point (a); |
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(c) |
they shall multiply that risk-weight by
where:
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(d) |
the downward and upward calibrated shock shall be the result of point (c). |
4. Where the non-modellable risk factor does not meet the conditions set out in paragraphs 2 and 3, institutions shall determine the corresponding downward and upward calibrated shocks by selecting a risk factor that meets the conditions set out in paragraph 5 and apply the method set out in paragraph 6 to that selected risk factor.
5. The risk factor to be selected in accordance with paragraph 4 shall meet all of the following conditions:
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(a) |
it belongs to the same broad risk factor category and broad sub-category of risk factors referred to in Article 325bd of Regulation (EU) No 575/2013 of the non-modellable risk factor; |
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(b) |
it is of the same nature as the non-modellable risk factor; |
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(c) |
it differs from the non-modellable risk factor for features that do not lead to an underestimation of the volatility of the non-modellable risk factor, including under stress conditions; |
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(d) |
its time series of 10 business days returns referred to in paragraph 6, point (a), contains at least 12 returns. |
6. Under the method referred to in paragraph 4, institutions shall apply the following steps in the following order:
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(a) |
for the selected risk factor, institutions shall, in accordance with Article 7, determine the time series of 10 business days returns for the stress period determined in accordance with Article 12; |
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(b) |
institutions shall determine the downward and upward calibrated shocks for the selected risk factor with:
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(c) |
institutions shall determine the downward calibrated shock for the non-modellable risk factor by multiplying the downward shock for the selected risk factor determined in accordance with point (b) by
where:
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(d) |
institutions shall determine the upward calibrated shock for the non-modellable risk factor by multiplying the upward shock for the selected risk factor determined in accordance with point (b) by
where:
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7. By way of derogation from paragraph 6, points (b)(i) and (b)(ii), where institutions apply the method referred to in paragraph 4 to all non-modellable risk factors in a non-modellable standardised bucket, they shall determine the upward and downward shocks for all the corresponding selected risk factors in accordance with either of the following:
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(a) |
the historical method set out in Article 8, where the number of returns in the time series of 10 business days returns referred to in paragraph 6, point (a), is equal to or greater than 200 for all the selected risk factors; |
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(b) |
the asymmetrical sigma method set out in Article 9, where the condition referred to in point (a) of this paragraph for applying the historical method is not met. |