Securitisation and Regulation News

EBA Releases Guidelines on Stress VaR and Incremental Default and Migration Risk Charge

The EBA released two sets of guidelines on Stressed Value-At-Risk (VaR) and on the Incremental Default and Migration Risk Charge (IRC) modeling approaches employed by credit institutions using the Internal Model Approach (IMA). The guidelines on stressed VaR include provisions on Stressed VaR modelling by credit institutions for the calculation of the required capital for market risk in the trading book. The main provisions of the guidelines relate to: the identification and the review of the stressed period; the Stressed VaR methodology; and the "use test." The main provisions in the guidelines on IRC focus on the scope of application; individual modelling of all aspects of the IRC approach; the interdependence between default and migration events; the profit and losses (P&L) valuation including how ratings changes impact on market prices and on the computation of P&L; the liquidity horizons; and the validation and use test for IRC models.

EBA release