Updated 22/12/2024
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CRR ToolDelegated Regulation 2024/397
Article 2

Article 2 - Direct method – non-modellable risk factors

Article 2

Direct method – non-modellable risk factors

1.   Under the direct method, institutions shall apply the following steps in the following order:

(a)

they shall determine a time series of losses as follows:

(i)

they shall determine, in accordance with Article 3, the time series of 10 business days returns for the non-modellable risk factor for the stress period determined in accordance with Article 12;

(ii)

they shall apply to the value of the non-modellable risk factor the shocks that correspond to the returns in the time series of 10 business days returns determined in accordance with point (i);

(iii)

they shall determine the time series of losses by calculating the losses which would occur if the non-modellable risk factor takes the values obtained in accordance with point (ii);

(b)

they shall calculate the estimate of the right-tail expected shortfall in accordance with Article 11(2) for the time series of losses obtained in accordance with point (a).

2.   At the end of the process set out in the first paragraph, a shock leading to the loss equal to the estimate referred to in paragraph 1, point (b), shall constitute the extreme scenario of future shock for the non-modellable risk factor.