Determination of the regulatory extreme scenario of future shock
Article 14
Open ↗1. The regulatory extreme scenario of future shock referred to in Article 325bk(3), point (b), of Regulation (EU) No 575/2013 shall be a shock leading to the maximum loss that may occur due to a change in the non-modellable risk factor where such maximum loss is finite. 2. Where the maximum loss referred to in paragraph 1 is not finite, institutions shall determine the regulatory extreme scenario of future shock by applying the following steps in the following order: (a) they shall use an expert-based approach using qualitative and quantitative information available to identify a loss due to a change in the value taken by the non-modellable risk factor that will not be exceeded with a level of certainty equal to 99,95 % on a 10 business day horizon in a future period of financial stress equivalent to the stress period identified for the non-modellable risk factor. When doing so, institutions shall take into account the skewness and the excess kurtosis that may characterise the returns of the non-modellable risk factor in a period of financial stress and shall justify any distributional or statistical assumptions taken for identifying that loss; (b) they shall multiply the loss obtained in accordance with point (a) by where: — , and where LH is the liquidity horizon for the non-modellable risk factor or for the risk factors within the non-modellable standardised bucket referred to in Article 325bd of Regulation (EU) No 575/2013; (c) they shall identify the regulatory extreme scenario of future shock as the shock leading to the loss resulting from points (a) and (b). 3. Where institutions calculate a stress scenario risk measure for more than one non-modellable risk factor as referred to in Article 325bk(3), point (c), of Regulation (EU) No 575/2013, the regulatory extreme scenario of future shock referred to in Article 325bk(3), point (b), of that Regulation shall be a scenario leading to the maximum loss that may occur due to a change in the values taken by those non-modellable risk factors. 4. By way of derogation of paragraph 3, where institutions calculate a stress scenario risk measure for more than one non-modellable risk factor as referred to in Article 325bk(3), point (c), of Regulation (EU) No 575/2013 and the maximum loss referred to in paragraph 3 of this Article is not finite, institutions shall determine the regulatory extreme scenario of future shock by applying the following steps in the following order: (a) they shall use an expert-based approach using qualitative and quantitative information available to identify a loss due to a change in the values taken by the non-modellable risk factors that will not be exceeded with a level of certainty equal to 99,95 % on a 10 business day horizon in a future period of financial stress equivalent to the stress period for the non-modellable risk factors. When doing so, institutions shall take into account the skewness and the excess kurtosis that may characterise the returns of the non-modellable risk factors in a period of financial stress and shall justify any distributional or statistical assumptions taken for identifying that loss; (b) they shall multiply the loss obtained in accordance with point (a) by ; where: — , and where LH is the liquidity horizon for the non-modellable risk factors referred to in Article 325bd of Regulation (EU) No 575/2013; (c) they shall identify the regulatory extreme scenario of future shock as the scenario leading to the loss resulting from points (a) and (b).