EBA欧洲银行-EBA-BS-2011-166r-28CP48-on-GL-Stressed-VaR29-FINAL_19页_552kb

EBA Consultation Paper on Draft Guidelines on Stressed VaR (CP 48)

Core Content

The EBA Consultation Paper on Draft Guidelines on Stressed Value at Risk (Stressed VaR) was published on 30 November 2011. It outlines the proposed guidelines for financial institutions to model Stressed VaR as part of their market risk capital requirements under the Capital Requirements Directive (CRD III), which entered into force on 31 December 2011. The paper invites feedback from stakeholders on the proposed guidelines and sets out the framework for how Stressed VaR should be identified, validated, and used in risk management.

Main Objectives

The primary objectives of the Stressed VaR guidelines are:

• To achieve a common understanding among competent authorities across the EU regarding Stressed VaR modeling, thereby enhancing convergence of supervisory practices.
• To increase transparency for institutions in implementing Stressed VaR into their capital calculations and risk management processes.
• To establish a level playing field among institutions in the application of Stressed VaR.

Key Requirements

A. Identification and Validation of the Stressed Period

• Length of the Stressed Period: Must be a continuous 12-month period of financial stress relevant to the institution's portfolio. Even if a shorter period is identified, the calibration must still be based on a 12-month period.
• Number of Stressed Periods: A single relevant stressed period must be identified for each portfolio.
• Approach to Identify the Stressed Period:
  • Institutions can use judgment-based or formulaic approaches.
  • Judgment-based approaches rely on a higher-level risk analysis without detailed quantitative methods.
  • Formulaic approaches use systematic quantitative analysis, such as:
    • Risk-factor based approach: Identifying relevant risk factors and analyzing their historical volatility.
    • VaR-based approach: Using the full or an approximation of the VaR model to identify the 12-month period with the highest VaR.
  • Formulaic approaches are preferred as they ensure a more conservative outcome.
• Documentation: Institutions must provide robust documentation to justify the selection of the stressed period, including statistical assessments and risk factor modeling.

B. Review of the Stressed Period

• Frequency: Institutions must review the identified 12-month stressed period yearly, although more frequent reviews may be required based on market or portfolio changes.
• Monitoring: Ongoing procedures must be in place to ensure the stressed period remains representative. These include monitoring changes in market conditions, portfolio composition, and risk factor loadings.
• Review Communication: Any changes to the historical period must be communicated to the competent authority at least two weeks before implementation.
• Stressed VaR to VaR Ratio: The ratio between Stressed VaR and VaR should be used as a reference for ongoing monitoring. A significant decrease in the ratio may signal the need for a review.

C. Stressed VaR Methodology

• Consistency with VaR: Stressed VaR should generally follow the same methodology as VaR, with some exceptions.
• Confidence Level: The confidence level for Stressed VaR is the same as for VaR (e.g., 99%).
• Back-Testing: Not required for Stressed VaR, but the multiplication factor for capital requirements is based on back-testing results.
• Calculation Frequency: Stressed VaR must be calculated at least weekly, though daily calculation is permissible if aligned with the VaR periodicity.
• Model Calibration: The model must be calibrated to a 12-month period of financial stress, and the use of proxies and simplifications is allowed provided they are well documented and conservative.

D. Use Tests

• Institutions must ensure that their Stressed VaR models are robust and accurate.
• Use tests are specified to validate the model's performance and ensure it aligns with regulatory expectations.

Implementation and Application

• The guidelines are intended to complement the CRD III provisions on Stressed VaR.
• They are expected to be implemented by national competent authorities within six months of the final guidelines' publication.
• Institutions using the Internal Model Approach (IMA) are subject to these guidelines.
• The guidelines apply at the level (solo or consolidated) where the model is authorized by the competent authority.

Proxies and Simplifications

• Definition of Proxies: Proxies are observable variables or prices used to substitute unobservable variables or those not reflecting real market data.
• Use of Proxies: Proxies are necessary due to data constraints, and their use must be justified and documented.
• Validation of Proxies: Proxies used for VaR may not automatically be valid for Stressed VaR. They must be reviewed periodically and must provide a conservative outcome.
• Conservative Assumptions: Institutions must demonstrate that proxies and simplifications are conservative and appropriate, considering their limitations.

Conclusion

The EBA Consultation Paper on Stressed VaR aims to strengthen the regulatory capital framework by introducing more robust and transparent methods for calculating Stressed VaR. It emphasizes the importance of a common understanding among supervisors, the use of conservative methodologies, and the need for thorough documentation and validation of models and proxies. The guidelines are expected to reduce procyclicality in capital requirements and enhance the resilience of the financial system.