Chapter 1, Article 5 · Commission Delegated Regulation (EU) 2024/397

Contents

Article 5Direct 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.