Consultation Response on the Calculation of the Stress Scenario Risk Measure

On September 4, 2020, ISDA submitted a response to a consultation by the European Banking Authority (EBA) on the calculation of the stress scenario risk measure.

One of the key features of the Fundamental Review of the Trading Book is the classification of risk factors that are included in risk measurement models of banks as modellable or non-modellable. As a result, the standards stipulate that institutions must calculate a separate stress scenario risk measure for each non-modellable risk factor (or non-modellable bucket).

This consultation sets out the methodologies that institutions are required to use for the purpose of determining the extreme scenario of future shock that, when applied to the non-modellable risk factor, provides the stress scenario risk measure. Setting out a clear methodology is deemed necessary to ensure a level playing field among institutions in the European Union.

The industry recognizes the EBA’s substantial efforts in developing regulatory standards on the calculation of the stress scenario risk measure for non-modellable risk factors as proposed in this consultation. However, there are concerns that the prescriptive nature of this regulatory technical standard could lead to fragmentation. We believe further revisions are necessary to improve the operational complexity, and demonstrate how a high-level principles-based approach would provide a more proportionate alternative.

Documents (1) for Consultation Response on the Calculation of the Stress Scenario Risk Measure

Response on Commodity Derivatives Markets

On April 22, ISDA and FIA submitted a joint response to the European Commission’s (EC) consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and...

Episode 50: The Value of Derivatives

A new report from ISDA shows that companies all over the world use derivatives to alleviate uncertainty, transfer risk and enhance profitability. ISDA discusses the findings with Boston Consulting Group’s Roy Choudhury. Please view this page via Chrome to access...

ISDA/IIF Response to EC Market Risk Consultation

On February 22, ISDA and the Institute of International Finance (IIF) submitted a joint response to the European Commission’s (EC) consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and...

ISDA Submits Letter on Environmental Credits

On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. The response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but...