On 13 July 2021, the European Banking Authority (EBA) published final guidelines that clarify the requirements that the data inputs used to determine the scenarios of future shocks applied to modellable risk factors should meet. The guidelines, which have been developed in accordance with Article 325bh(3) of the Capital Requirements Regulation (CRR), become applicable from 1 January 2022.
Article 325bh(3) of the CRR mandates the EBA to develop guidelines specifying the criteria for the use of data inputs referred to in Article 325bc of the CRR (i.e. the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors) in calculating the partial expected shortfall measures in accordance with the same article. The guidelines should clarify the requirements that these data inputs should meet to be used for determining the scenario of future shocks in the institutions’ expected shortfall risk measure.
The guidelines set out criteria for the accuracy, appropriateness, frequency for updating and completeness of the data inputs used by institutions. The data inputs used in the expected shortfall model, in order to be accurate, should be calibrated to historical data reflective of prices observed or quoted in the market. In order to be appropriate, the data inputs should capture, where relevant, both general and specific risks. Those data inputs should also be updated as often as possible, to account for changing market conditions. Finally, those data inputs should prove to be complete, and, in this respect, various aspects are considered, such as the replacement of missing or inconsistent values.