Chapter 2, Article 18 · Commission Delegated Regulation (EU) 2024/1085

Contents

Article 18Assessment of the adequacy of the reverse and ad-hoc stress testing scenarios#

1.When assessing the adequacy of the reverse stress testing scenarios referred to in Article 325bi(1), point (g), of Regulation (EU) No 575/2013, competent authorities shall verify whether:

(a)the risk control unit applies the reverse stress test as a tool to identify possible combinations of severe events and risk concentrations within the institution, including severe events and risk concentrations that derive from environmental risks;

(b)the analysis performed with the reverse stress test complements the regular stress testing;

(c)when identifying the scenario or scenarios resulting from reverse stress testing, the risk control unit assesses:

(i)the business lines where traditional risk management models indicate an exceptionally good trade-off between risk and return;

(ii)new products and new markets which have not experienced severe strains;

(iii)exposures where there are no liquid two-way markets;

(iv)foreign exchange exposures either pegged or subject to a cap or floor to other currencies;

(v)positions in deep out-of-the-money options, in particular digital options;

(vi)events not considered in the stress period used to calibrate the expected shortfall risk measures referred to in Article 325bb of Regulation (EU) No 575/2013;

(vii)environmental risks in the form of both physical and transition risks.