Updated 23/11/2024
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CRR ToolDelegated Regulation 2024/397
Article 5

Article 5 - Direct method – non-modellable standardised buckets

Article 5

Direct method – non-modellable standardised buckets

1.   When applying the direct method to non-modellable risk factors belonging to non-modellable standardised buckets, institutions shall apply the following steps in the following order:

(a)

they shall determine a time series of losses as follows:

(i)

for each non-modellable risk factor within the non-modellable bucket, they shall, in accordance with Article 7, determine the time series of nearest to 10 business days returns for the stress period determined in accordance with Article 12;

(ii)

they shall remove from each time series obtained in accordance with point (i), the values corresponding to dates for which not all those time series have a return;

(iii)

for each non-modellable risk factor within the non-modellable bucket, they shall apply to the value of the non-modellable risk factor the shocks that corresponds to the returns in the corresponding time series obtained in accordance with point (ii);

(iv)

they shall determine the time series of losses by calculating, for each date corresponding to a value in the time series obtained in accordance with point (iii), the loss that would occur if the non-modellable risk factors in the non-modellable bucket takes the values included in those time series for that date;

(b)

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

2.   The scenario of shocks leading to a loss equal to the estimate of the right-tail expected shortfall obtained in accordance with paragraph 1, point (b), shall constitute the extreme scenario of future shock for the non-modellable bucket.