These Guidelines are seen as an important means of addressing weaknesses in the
regulatory capital framework and in the risk management of financial institutions.
Their objective is to contribute to a level playing field and to enhance convergence
of supervisory practices across the EU.
National competent authorities are expected to implement the provisions set out
in the Guidelines within six months after their publication. After that date,
the competent authorities must ensure that institutions comply with the Guidelines
effectively.
Guidelines on Stressed Value-At-Risk (Stressed VaR)
These Guidelines include provisions on Stressed VaR modelling by credit institutions
using the Internal Model Approach for the calculation of the required capital
for market risk in the trading book.
The main provisions of the Guidelines relate to:
Guidelines on the Incremental Default and Migration Risk Charge (IRC)
These Guidelines include provisions on the IRC modelling approaches employed
by credit institutions using the Internal Model Approach (‘IMA’) for the calculation
of the required capital for specific interest risk in the trading book. The incremental
risk charge is intended to complement additional standards being applied to the
value-at-risk (VaR) modelling framework in the trading book.
The main provisions of the Guidelines relate to:
-
The scope of application; Individual modelling of all aspects of the IRC approach
-
The interdependence between default and migration events;
-
The profit and losses (P&L) valuation including how ratings changes impact
on market prices and on the computation of P&L;
-
The liquidity horizons;
-
The validation and use test for IRC models.
Notes for Editors
1) According to the amendments of the Capital Requirements Directive by Directive
2010/76/EU (CRD IIV), entered into force on 31 December 2011, the EBA is tasked
with monitoring the range of practices in the area of Stressed Value-at-Risk (Stressed
VaR) and Incremental Default and Migration Risk Charge (IRC) in the trading book.
The EBA shall draw up guidelines in order to ensure convergence of supervisory
practices.
2) In accordance with Article 16(3) of the EBA Regulation, Guidelines set
out the EBA’s view of appropriate supervisory practices within the European System
of Financial Supervision or of how Union law should be applied in a particular
area. Competent authorities and financial market participants must make every
effort to comply with the guidelines. Before the deadline indicated in the Guidelines,
i.e 6 months from the date of publication, Competent authorities must notify the
EBA as to whether they comply or intend to comply with these guidelines, or otherwise
with reasons for non-compliance. The notifications shall be published on the EBA
website.
Go to Guidelines