Article 14
Determination of the regulatory extreme scenario of future shock
1. The regulatory extreme scenario of future shock referred to in Article 325bk(3), point (b), of Regulation (EU) No 575/2013 shall be a shock leading to the maximum loss that may occur due to a change in the non-modellable risk factor where such maximum loss is finite.
2. Where the maximum loss referred to in paragraph 1 is not finite, institutions shall determine the regulatory extreme scenario of future shock by applying the following steps in the following order:
|
(a) |
they shall use an expert-based approach using qualitative and quantitative information available to identify a loss due to a change in the value taken by the non-modellable risk factor that will not be exceeded with a level of certainty equal to 99,95 % on a 10 business day horizon in a future period of financial stress equivalent to the stress period identified for the non-modellable risk factor. When doing so, institutions shall take into account the skewness and the excess kurtosis that may characterise the returns of the non-modellable risk factor in a period of financial stress and shall justify any distributional or statistical assumptions taken for identifying that loss; |
|
(b) |
they shall multiply the loss obtained in accordance with point (a) by
where:
|
|
(c) |
they shall identify the regulatory extreme scenario of future shock as the shock leading to the loss resulting from points (a) and (b). |
3. Where institutions calculate a stress scenario risk measure for more than one non-modellable risk factor as referred to in Article 325bk(3), point (c), of Regulation (EU) No 575/2013, the regulatory extreme scenario of future shock referred to in Article 325bk(3), point (b), of that Regulation shall be a scenario leading to the maximum loss that may occur due to a change in the values taken by those non-modellable risk factors.
4. By way of derogation of paragraph 3, where institutions calculate a stress scenario risk measure for more than one non-modellable risk factor as referred to in Article 325bk(3), point (c), of Regulation (EU) No 575/2013 and the maximum loss referred to in paragraph 3 of this Article is not finite, institutions shall determine the regulatory extreme scenario of future shock by applying the following steps in the following order:
|
(a) |
they shall use an expert-based approach using qualitative and quantitative information available to identify a loss due to a change in the values taken by the non-modellable risk factors that will not be exceeded with a level of certainty equal to 99,95 % on a 10 business day horizon in a future period of financial stress equivalent to the stress period for the non-modellable risk factors. When doing so, institutions shall take into account the skewness and the excess kurtosis that may characterise the returns of the non-modellable risk factors in a period of financial stress and shall justify any distributional or statistical assumptions taken for identifying that loss; |
|
(b) |
they shall multiply the loss obtained in accordance with point (a) by
where:
|
|
(c) |
they shall identify the regulatory extreme scenario of future shock as the scenario leading to the loss resulting from points (a) and (b). |