75. Institutions should ensure that their stress test scenarios meet at least the following …

Institutions should ensure that their stress test scenarios meet at least the following requirements:

• a) address the main risk factors that the institution may be exposed to; in this regard, the results obtained from single risk factor analyses, which aim to provide information about the sensitivity towards single risk factors, should be used to identify scenarios that include a stress of a combined set of highly plausible risk factors; no material risk factor should be left unstressed or unconsidered;
• b) address major institution-specific vulnerabilities, deriving from the regional and sectoral characteristics of an institution, as well as its specific product or business line exposures and funding policies: concentration and correlation risks, both of an intra- and of an inter– risk type, should be identified a priori;
• c) include a coherent narrative for the scenario, covering all main risk factors as well as their (forward-looking) development on the basis of multiple trigger events (i.e. monetary policy, financial sector developments, commodity prices, political events and natural disasters); institutions should ensure that the scenario narrative is plausible and non-contradictory when assuming the co-movement of risk factors and the corresponding reaction of market participants; and, where certain risk factors are excluded from the scenario narrative, institutions should ensure that this exclusion is fully justified and documented;
• d) are internally coherent, so as to ensure that the identified risk factors behave consistently with other risk factors in a stress event and that they contain explicit estimates and assumptions on the dependence structure among the main underlying risk factors; importantly, co-movements in risk factors that may appear contradictory should be explored to identify new sensitivities;
• e) take into account innovation and more specifically technological developments or sophisticated financial products without disregarding their interaction with more traditional products; and
• f) ensure that stressed risk factors translate into internally consistent risk parameters.

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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