| (1) Solvency stress test | means including capital additional the highlighting capacity position. | | the position institution’s | assessment of the impact of certain developments, macro- or microeconomic scenarios, on the overall of an institution, including on its minimum or own funds requirements, by means of projecting capital resources and requirements, the institution’s vulnerabilities and assessing its to absorb losses and the impact on its solvency |
| (2) Liquidity stress test | means including and position additional | | the liquidity | assessment of the impact of certain developments, macro- or microeconomic scenarios, from a funding perspective and shocks on the overall liquidity of an institution, including on its minimum or requirements. |
| (3) Bottom-up stress test | means following | iii. iv. | i. ii. | a (solvency or liquidity) stress test with all of the characteristics: it is carried out by institutions using their own internally developed models; it is based on the institution’s own assumptions or scenarios, with possible conservative constrains by authorities; it is based on the institution’s own data and potentially high level of data granularity, with possible use of external data for some additional information; and it concerns particular portfolios or the institution as a whole, producing detailed results on the potential impact of exposure concentrations, institution linkages and contagion probabilities to the institution’s loss rates. |
| (4) Top-down stress test | means following | iii. iv. | i. ii. v. | a (solvency or liquidity) stress test with all of the characteristics: it is carried out by competent authorities or macroprudential authorities; it is based on general or systemic (macroprudential) assumptions or scenarios designed by competent or macroprudential authorities and applicable to all relevant institutions; competent authorities or macroprudential authorities manage the process and calculate the results with less involvement of the institutions than in the case of the bottom-up stress test; it is based mostly on aggregate institution data and less detailed information, depending on the assumptions of the stress test, or sometimes based on more detailed institution data if deemed necessary by authorities; and it enables a uniform and a common framework and comparative assessment of the impact of a given stress testing exercise across institutions. |
| (5) Static balance sheet assumption | means impact assumption or enhancing thereby: i. ii. | | stable | a methodological assumption according to which the of the stress test scenarios is to be measured on the of a ‘constant balance sheet’ and of an ‘unchanged business model’ throughout the projection period, the comparability of the results across institutions, prohibiting from taking into account, for the calculation of the impact of the scenarios, changes in the assets and liabilities of the institution that derive, indicatively, from management actions, increases or work-outs of existing lending or differences in maturities or other characteristics of these assets or liabilities (despite the application of the stress test methodology, which might lead to changes in the size and the composition of the balance sheet, and particularly the capital base, over the projection period, due to, for example, new defaults, impairments, increases of stock or value adjustments of financial assets); and permitting the inclusion of new assets and liabilities as far as these new items bear the same main characteristics (maturities, risk profiles, etc.) with the excluded ones . |
| (6) Dynamic balance sheet assumption | means impact possibility business dynamic test responsive comparability responsive constrained the conditional | | reflects start | a methodological assumption according to which the of the stress test scenario is to be measured on the of a non-constant balance sheet and of an evolving model throughout the projection period. Under the balance sheet assumption, the outcome of the stress a combination of the scenario imposed and the actions taken by the management reducing the of the results across institutions. The extent of actions taken by the management may be or unconstrained (e.g. interventions planned from and independent from the scenario and/or on the stress test scenario). |
| (7) Portfolio level stress test | means focus or | | a on multiple | stress test of individual or several portfolios with the the implications of the shocks from a single risk factor risk factors. |
| (8) Sensitivity analysis | means specific capital as | | or a whole. | a stress test that measures the potential impact of a single risk factor or simple multi-risk factors, affecting liquidity, to a particular portfolio or to the institution |
| (9) Scenario analysis | means a factors, | iii. | the portfolio i. ii. | assessment of the resilience of an institution or of to a given scenario that comprises a set of risk which should have all of the following characteristics: they are aligned in an internally consistent way; the risk factors forming the relevant set presuppose the simultaneous occurrence of forward-looking events covering a range of risks and business areas; and the set of risk factors also aim to reveal, to the maximum extent possible, the nature of linked risks across portfolios and across time, system-wide interactions and feedback effects. |
| (10) Reverse stress test | means identification an the meaning explores occur. following | iii. | institution institution Reverse i. ii. | an institution stress test that starts from the of the pre-defined outcome (e.g. points at which business model becomes unviable, or at which can be considered as failing or likely to fail in the of Article 32 of Directive 2014/59/EU) and then scenarios and circumstances that might cause this to stress testing should have one or more of the characteristics: it is used as a risk management tool aimed at increasing the institution’s awareness of its vulnerabilities by means of the institution explicitly identifying and assessing the scenarios (or a combination of scenarios) that result in a pre-defined outcome; the institution decides on the kind and timing (triggering events) of management or other actions necessary for both (a) rectifying business failures or other problems; and (b) aligning its risk appetite with the actual risks revealed by the reverse stress testing; specific reverse stress testing can be also applied in the context of recovery planning (e.g. reverse stress tests applied in a wider context can be used to inform a recovery plan stress test by identifying the conditions under which the recovery might need to be planned). |
| (11) Second-round or feedback effects | means not responses shock, mitigate) negative | | the limited which | spillover effects (the nature of feedback effects is to macroeconomic effects) caused by the of individual institutions to an external original – in aggregate – generally amplify (it may also such an original shock, thereby causing an additional feedback loop. |
| (12) Severity of scenario | means deterioration scenario) macroeconomic assumptions). general, institution, stress | | test. | the degree of severity of the assumptions or the of the scenario (from baseline to an adverse expressed in terms of the underlying and financial variables (or any other The greater the severity of the scenario, in the larger the impact of the stress test on the thereby determining the actual severity of the |
| (13) Plausibility of scenario | means to of variables, and historical experiences, account breaks) environments experience simulative | | the materialise that scenario the | degree to which a scenario can be regarded as likely in respect of the consistency of the relationship with the current macroeconomic and financial the support of the scenario by a coherent narrative backing of the scenario by probability distribution and experiences. Plausibility is not restricted to historical and hence expert judgements that take into changing risk environments (e.g. observed structural and stress events that were observed in similar risk outside the institution’s own direct historical should play a key role. It is also possible to use methods (e.g. Monte Carlo simulations). |
| (14) Anchor scenario | means authority test, that benchmark scenarios. | | which should | a type of scenario usually designed by a competent to set the severity standard for a particular stress is imposed on institutions, either as the scenario be applied in the stress test or as a severity for the development of the institution’s own |
| (15) Risk data aggregation | means to institution tolerance/appetite. down | | defining, the institution’s sets | gathering and processing risk data according risk reporting requirements to enable the to measure its performance against its risk This includes sorting, merging or breaking of data. |
| (16) Data infrastructure | means build architecture and | | physical and internal | and organisational structures and facilities to maintain data and information technology (IT) to support the institution’s risk data aggregation policy on risk reporting. |