On 20 October 2023, the European Commission published Commission Delegated Regulation (EU) of 20 October 2023 supplementing the Capital Requirements Regulation with regard to regulatory technical standards (RTS) on the calculation of the stress scenario risk measure.
The RTS foresee two overarching methods to develop the extreme scenarios of future shock for non-modellable risk factors:
- The first, the direct method, requires institutions to develop the extreme scenario of future shock for a given non-modellable risk factor by calculating the expected shortfall measure of the losses occurring when varying that risk factor according to its historically observed levels during a stress period.
- The second, the stepwise method, requires institutions to obtain the extreme scenario of future shock for a given non-modellable risk factor by calculating an expected shortfall measure on the returns observed for that risk factor, and calculating the loss corresponding to the movement in the risk factor identified by that expected shortfall measure.
The Commission Delegated Regulation enters into force on the twentieth day following its publication in the Official Journal Of the European Union.