Response to consultation Paper on Draft Regulatory Technical Standards on the calculation of the stress scenario risk measure under Article 325bk(3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation 2 - CRR2)
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Q1. What is your preferred option among option A (stress period based extreme scenario of future shock) and option B (extreme scenario of future shock rescaled to stress period)? Please elaborate highlighting pros and cons.
Please see the attached fileQ2. What are characteristics of the data available for NMRF in the data observation periods under options A and B?
Please see the attached fileQ3. Do you think that institutions will actually apply the direct method to derive the extreme scenario of future shock or do you think that given the computational efforts that it requires and considering that the historical method typically provides very similar results it will not be used in practice? As stated in the background section of this CP, the EBA will drop the direct method from the framework if not provided with clear evidence for its need.
Please see the attached fileQ4. What is your preferred option among (i) the representative risk factor – parallel shift option, and (ii) the contoured shift option? Please elaborate highlighting pros and cons.
Please see the attached fileQ5. What are your views on how institutions are required to build the time series of 10 business days returns? Please elaborate.
Please see the attached fileQ6. What is your preferred option among (i) the sigma method and (ii) the asymmetrical sigma method for determining the downward and upward calibrated shocks? Please highlight the pros and cons of the options. In addition, do you think that in the asymmetrical sigma method, returns should be split at the median or at another point (e.g. at the mean, or at zero)? Please elaborate.
Please see the attached fileQ7. What are your views on the value taken by the constant CES for scaling a standard deviation measure to approximate an expected shortfall measure?
Please see the attached fileQ8. What are your views on the uncertainty compensation factor (1+CUC√2(N−1.5))? Please note that this question is also relevant for the purpose of the historical method.
Please see the attached fileQ9. What are your views on the fallback method that is envisaged for risk factors that are included in the sensitivity-based method? Please elaborate.
Please see the attached fileQ10. What are your views on the fallback method that is envisaged for risk factors that are not included in the sensitivity-based method? Please comment on both the ‘other risk factor’ method, and the ‘changing period method’.
Please see the attached fileQ11. What are your views on the conditions identified in paragraph 5 that the ‘selected risk factor’ must meet under the ‘other risk factor’ method? What would be other conditions ensuring that a shock generated by means of the selected risk factor is accurate and prudent for the corresponding non-modellable risk factor?
Please see the attached fileQ12. What are your views on the definition of stress period under option A (i.e. the period maximizing the rescaled stress scenario risk measures for risk factors belonging to the same broad risk factor category)? What would be an alternative proposal?
Please see the attached fileQ13. What are your views on the definition of maximum loss that has been included in these draft RTS for the purpose of identifying the loss to be used as maximum loss when the latter is not finite? What would be an alternative proposal?
Please see the attached fileQ14. How do you currently treat non-pricing scenarios (see section 3.2.5 of the background section) if they occur where computing the VaR measures? How do you envisage implementing them in (i) the IMA ES model and (ii) the SSRM, in particular in the case of curves and surfaces being partly shocked? What do you think should be included in these RTS to address this issue? Please put forward proposals that would not provide institutions with incentives that would be deemed non-prudentially sound and that would target only the instruments and the pricers for which the scenario can be considered a ‘non-pricing scenario’.
Please see the attached fileQ15. What are your views on the conditions included in these draft RTS for identifying whether a risk factor can be classified as reflecting idiosyncratic credit spread risk only (resp. idiosyncratic equity risk only)? Please elaborate.
Please see the attached fileQ16. What are your views on flooring the value taken by non-linearity coefficient κ to 0.9? Please elaborate.
NAQ17. What are your views on the definition of the tail parameter Φavg where a contoured shift is applied (i.e. average of the tail parameters of all risk factors within the regulatory bucket)? Please elaborate.
NAQ18. Would you consider it beneficial to set the tail parameter φ to the constant value 1.04 regardless of the methodology used to determine the downward and upward calibrated shock (i.e. setting φ = 1.04 also under the historical method, instead of using the historical estimator)? Please elaborate.
Please see the attached fileQ19. Do you agree with the definition of the rescaling factor MiS,C under option B or do you think that the rescaling of a shock from the current period to the stress period should be performed differently? Please elaborate.
Please see the attached fileQ20. The scalar miS,C is obtained by using data related to modellable risk-factors in a specific risk class (i.e. the class i). As a result, such a scalar is not defined where an institution does not have any modellable risk factor in this risk class. How do you think the scalar miS,C should be determined in those cases? Please elaborate.
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ABI response EBA CP SSRM NMRFs.pdf
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