Updated 23/11/2024
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CRR ToolDelegated Regulation 2024/397
Article 6

Article 6 - Stepwise method – non-modellable standardised buckets

Article 6

Stepwise method – non-modellable standardised buckets

1.   When applying the stepwise method to non-modellable risk factors belonging to non-modellable standardised buckets, institutions shall determine the extreme scenario of future shock by applying the following steps in the following order:

(a)

for each non-modellable risk factor within the non-modellable standardised bucket they 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;

(b)

for each non-modellable risk factor within the non-modellable standardised bucket, they shall determine an upward and a downward calibrated shock from the corresponding time series of 10 business days returns referred to in point (a) in accordance with:

(i)

the historical method set out in Article 8, where the number of returns in all the time series of 10 business days returns referred to in point (a) of this paragraph corresponding to the non-modellable risk factors in the non-modellable bucket is equal to or greater than 200;

(ii)

the asymmetrical sigma method set out in Article 9, where the condition set out in point (b)(i) of this paragraph for using the historical method is not met, and the number of returns in all the time series of 10 business days returns referred to in point (a) of this paragraph corresponding to the non-modellable risk factors in the non-modellable bucket is equal to or greater than 12;

(iii)

the fallback method set out in Article 10, where there is at least one non-modellable risk factor in the non-modellable bucket for which the number of returns in the time series of 10 business days returns referred to in point (a) of this paragraph is lower than 12;

(c)

they shall calculate both of the following:

(i)

the loss corresponding to a scenario where the corresponding upward calibrated shock determined in accordance with point (b), multiplied by a parameter β, is applied to each risk factor in the non-modellable bucket;

(ii)

the loss corresponding to a scenario where the corresponding downward calibrated shock determined in accordance with point (b), multiplied by a parameter β, is applied to each risk factor in the non-modellable bucket.

For the purposes of point (c), institutions shall multiply the upward and downward calibrated shocks by the parameter β in two cases, with β = 1 and β = ⅘.

2.   The scenario of shocks leading to the highest loss among those calculated in accordance with paragraph 1, point (c), shall constitute the extreme scenario of future shock for the non-modellable standardised bucket.