Consultation Response on the Calculation of the Stress Scenario Risk Measure

On September 4, 2020, ISDA submitted a response to a consultation by the European Banking Authority (EBA) on the calculation of the stress scenario risk measure.

One of the key features of the Fundamental Review of the Trading Book is the classification of risk factors that are included in risk measurement models of banks as modellable or non-modellable. As a result, the standards stipulate that institutions must calculate a separate stress scenario risk measure for each non-modellable risk factor (or non-modellable bucket).

This consultation sets out the methodologies that institutions are required to use for the purpose of determining the extreme scenario of future shock that, when applied to the non-modellable risk factor, provides the stress scenario risk measure. Setting out a clear methodology is deemed necessary to ensure a level playing field among institutions in the European Union.

The industry recognizes the EBA’s substantial efforts in developing regulatory standards on the calculation of the stress scenario risk measure for non-modellable risk factors as proposed in this consultation. However, there are concerns that the prescriptive nature of this regulatory technical standard could lead to fragmentation. We believe further revisions are necessary to improve the operational complexity, and demonstrate how a high-level principles-based approach would provide a more proportionate alternative.

Documents (1) for Consultation Response on the Calculation of the Stress Scenario Risk Measure

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