Methodological Note

METHODOLOGICALNOTEEUWIDESTRESSTEST2014
29April2014
MethodologicalnoteEUwideStress
Test2014
Version2.0
Contents
ListofBoxes
ListofFigures
ListofTables
Abbreviations
1. Introduction
1.1 Background
1.2 Objectivesofthisguidance
1.3 Sampleofbanks
1.4 Scopeofconsolidation
1.5 Macroeconomicscenariosandmarketriskshocks
1.6 Timehorizonandreferencedate
1.7 Definitionofcapital
1.8 Hurdlerates
10
1.9 Staticbalancesheetassumption
10
1.10 Riskcoverage
11
1.11 Overviewonstresstestingmethodologyaccordingtorisktype
12
1.12 Process
12
2. Dataneeds
16
2.1 Templatestructure
16
2.2 Detailsoncoretemplates
18
2.2.1
2.2.2
2.2.3
Advancedatacollection
Calculationsupportandvalidationdata
Transparency
2.3 Detailsonadditionaltemplates
2.3.1
18
18
19
20
20
3. Quantificationofdifferentrisktypes
21
3.1 Creditrisk
21
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.1.8
3.1.9
Overview
Highlevelassumptionsandconstraints
Exposureclassesandassetclasses
Definitions
Startingvaluesforriskparameters
Riskparameterandexposureevolution
Calculationofdefaultedassets,impairmentsandassociatedbenchmarks
ImpactonCreditRWAandassociatedbenchmarks
RWAfordefaultedassetsandIRBexcessorshortfall
21
23
23
25
28
29
33
35
36
2
3.2 Marketrisk
36
3.2.1
3.2.2
3.2.3
3.2.4
3.2.5
3.2.6
3.2.7
3.2.8
3.2.9
36
38
39
40
41
42
44
46
46
Overview
SimplifiedmarketriskstresstestapproachfornonVaRbanks
ComprehensivemarketriskapproachforVaRbanks
EstimationofimpactonNTI,othercomprehensiveincomeandP&L
Specificrequirementsforpositionsheldfortrading
Descriptionofmarketriskscenario
AdditionalrequirementsforcreditcounterpartyriskandDVA
Othertradedriskrequirements
RWAcalculationformarketriskandcounterpartycreditrisk
3.3 Treatmentofsecuritisations
3.3.1
3.3.2
3.3.3
Scope
Riskweightedassetscalculationforsecuritisations
3.4 Costoffundingandinterestincome
3.4.1
3.4.2
3.4.3
3.4.4
Overview
Projectionoflendingandfundingrates
Additionalrequirements
Definitions
3.5 Sovereignrisk
3.5.1
3.5.2
48
48
48
49
50
50
51
53
53
57
Overview
Definitions
57
58
3.6 Noninterestincomeandexpenses
59
3.6.1
3.6.2
Overview
Specificrequirementsregardingincomeorexpenseitems
59
60
3.7 Operationalrisk
61
Annex1:Accompanyingdocuments
62
Annex2:Overviewoftemplatecontent
63
Annex3:EUwidestresstestsampleofbanks
66
ListofBoxes
Box1:Defaultflowsandgranularity,anexample
31
Box2:IllustrationDPC
31
Box3:InferringstressedpointintimeparametersfromECBbenchmarks
32
Box4:Impairmentlossesonnewdefaultedassets
33
Box5:Impairmentlossesonolddefaultedassets
34
Box6:Formaliseddescriptionsimplifiedmarketriskstressapproach
39
Box7:Treatmentofadditionalriskfactors
43
Box8:Detaileddefinitionsregardingtheevolutionofportfolioandinterestincome
54
ListofFigures
Figure1:Summaryofcreditriskmethodology
22
Figure2:IllustrationofstartingvalueapproachesfortheinferenceofPDpitandLGDpit
29
ListofTables
Table1:OverviewofrisktypesandtheirtreatmentintheEUwidestresstest
14
Table2:Overviewoftemplatestructure
17
Table3:OverviewoftheIRBandSTAexposureclasses
24
Table4:Overviewofdetailedassetclasses
24
Abbreviations
ABCP
AssetBackedCommercialPaper
ABS
AssetBackedSecurity(ies)
ADC
AdvanceDataCollection
AfS
AvailableforSale(accountingportfolio)
AIRB
AdvancedInternalRatingsBasedapproach
ALM
AssetLiabilityManagement
Art
Article
AQR
AssetQualityReview
CA(s)
CompetentAuthority(ies)
CCF
CreditConversionFactor
CCP
CentralCounterparty
CDO
CreditDebtObligation
CEBS
CommitteeofEuropeanBankingSupervisors
CMBS
CommercialMortgageBackedSecurity(ies)
COREP
Commonreportingframeworkforcapitaladequacyinformation
CRDII
Directive2006/48/ECand2006/49/ECasamendedbytheDirective2009/111/EC
CRDIII
Directive2010/76/EU
CRM
ComprehensiveRiskMeasure
CRR/CRDIV
Regulation(EU)No575/2013andDirective2013/36/EU
CSA
CreditSupportAnnex
CSV
CalculationSupportandValidation
CVA
CreditValueAdjustments
DPC
DefaultPortfolioCharacteristicstoincorporatefactorssuchastimeindefault.
DTA
DeferredTaxAsset
EAD
ExposureatDefault
EBA
EuropeanBankingAuthority
ECB
EuropeanCentralBank
EEA
EuropeanEconomicArea
ELBE
ExpectedLossBestEstimate
EMEA
Europe,MiddleEastandAfrica
ESRB
EuropeanSystemicRiskBoard
EU
EuropeanUnion
5
Euribor
EuroInterbankOfferedRate
FINREP
Reportingframeworkforfinancialinformation
FIRB
FoundationInternalRatingsBasedapproach
FVA
FairValueAdjustment
FVO
FairValueOption(accountingportfolio)
HfT
HeldforTrading(accountingportfolio)
HtM
HeldtillMaturity(accountingportfolio)
IAA
InternalAssessmentApproach
IAS
InternationalAccountingStandard
ICAAP
InternalCapitalAdequacyAssessmentProcess
IFRS
InternationalFinancialReportingStandards
IRB
InternalRatingsBasedapproach
IRC
IncrementalRiskCharge
LGD
LossGivenDefault
LGDpit
LossGivenDefaultpointintime
LGDreg
LossGivenDefaultregulatory
NSA
NationalSupervisoryAuthority
Para.
Paragraph
PD
ProbabilityofDefault
PDpit
ProbabilityofDefaultpointintime
PDreg
ProbabilityofDefaultregulatory
PIT
Pointintime
P&L
ProfitandLoss
RMBS
RetailMortgageBackedSecurity(ies)
RW
RiskWeight(s)
RWA
RiskWeightedAssetsrespectivelyriskexposureamount
SFA
SupervisoryFormulaApproach
STA
StandardisedApproach
SVaR
StressValueatRisk
TTC
Throughthecycle
TR
Transparency
VaR
ValueatRisk
w.r.t.
Withrespectto
1. Introduction
1.1 Background
1. TheEBAisrequired,incooperationwiththeEuropeanSystemicRiskBoard(ESRB),toinitiate
and coordinate Unionwide stress tests to assess the resilience of financial institutions to
adverse market developments. Building on experience of previous EUwide stress tests, the
EBA is conducting a stress test on a wide sample of banks in 2014. This exercise is being
undertakenin coordinationwithnationalsupervisoryauthorities,the EuropeanCentralBank
(ECB), the ESRB, and the European Commission under Article 32 of the EBA regulation.
Coordination with the ECB is also of importance, since the ECB in preparation of the Single
Supervisory Mechanism (SSM) is conducting a comprehensive assessment comprising of a
supervisory risk assessment, asset quality review and a stress test. The main features of the
ECBstresstestexercisewillcoincidewiththemainfeaturesoftheEUwidestresstestexercise
asdiscussedinthiscommunication.
The Authority shall, in cooperation with the ESRB, initiate and coordinate Unionwide
assessmentsoftheresilienceoffinancialinstitutionstoadversemarketdevelopments.Tothat
enditshalldevelop:
(a) common methodologies for assessing the effect of economic scenarios on an institution's
financialposition;
(b) common approaches to communication on the outcomes of those assessments of the
resilienceoffinancialinstitutions;
(c) common methodologies for assessing the effect of particular products or distribution
processesonaninstitution;and
(d) common methodologies for asset evaluation, as necessary, for the purpose of the stress
testing."
2. TheobjectiveoftheEUwidestresstestistoassesstheresilienceoffinancialinstitutionsinthe
EU toadversemarket developmentsandassessthepotentialforsystemicrisktoincreasein
situationsofstress.Theevaluationisbasedonconsistencyandcomparabilityoftheoutcomes
acrossbanks.
3. The EUwide stress test is designed to provide supervisors, banks and other market
participants with a common exercise that facilitates the creation of benchmarks to contrast
andcompareEUbanksunderadversemarketconditions.Therefore,theexerciseisdesigned
to provide competent authorities (CAs) with a consistent and comparable methodology to
allowthemtoundertakearigorousassessmentofbanksresilienceunderstressandwhichcan
be effectively disseminated in a transparent and comparable fashion at an EUlevel via the
EBA.Tothisend,theEUwidestresstestisfocusedonprovidingconsistenttransparencyasa
complement, not as a substitute, to other supervisory required stress tests including those
carriedoutunderPillar2.
4. The EUwide stress test is conducted on a bankbybank basis, at the highest level of
consolidation in the European Economic Area (EEA). The assessment of the reliability and
robustnessofbanksassumptions,data,estimatesandresultsrestswiththeCAsandforthe
SSM countries centrally with the ECB. Banks calculations should be rigorously reviewed and
challengedbytherespectiveCAsandforSSMcountriesalsobytheECBbeforebeingcollected
bytheEBAanddisseminatedfortransparencypurposes.
5. TheEBAwillprovideCAswithstatisticalbenchmarksforthekeyriskparametersandvariables
forassistingthequalityassuranceprocess.Althoughsomedifferencesareexpectedintheway
the macroeconomic scenarios will be translated by banks into the relevant risk parameters,
theresultsareexpectedtobesubstantiallyconsistentforcomparableportfolios,institutions
andrecenthistoricaltrends.
6. TheEBAnotesthespecificbenefitsofaconsistentandtransparentstresstestexercise.Atone
levelitfacilitatesmarketdiscipline,throughtheproductionofgranulardataonabankbybank
levelillustratinghowacommonstartingpoint,basedonactualdata,isaffectedbyacommon
shock.AtthesametimeanEUwideexercisecanserveasacommongroundonwhichCAscan
basetheirsupervisoryassessmentsofbanksresiliencetorelevantshocks,inordertoidentify
appropriatemitigatingactions.
1.2 Objectivesofthisguidance
7. Thisdocumentaimsatprovidingbankswithadequateguidanceandsupportinperformingthe
EUwidestresstestbytheillustrationoftheobjective,scope,scenarios,commondefinitions
andassumptions.
8. Thisguidanceisintendedasatoolforthebanksparticipatingintheexerciseanditdoesnot
coverthestepsofthequalityassuranceprocess,whicharemanagedbytheCAsandrestunder
their sole responsibility. Accordingly, the guidance does not deal with possible supervisory
measures to be put in place following the outcome of the stress test. Any decisions on the
supervisoryreactionfunctionwillbetakenandannouncedbytherelevantCA.
9. The templates used for collecting data from the banks as well as for publicly disclosing the
outcomeoftheexerciseareanintegralpartofthisdocument.CAsmayrequirebanksunder
theirsupervisiontosubmitadditionaldataforchallengingfirmsresultsaspartoftheirquality
assuranceprocess.
10.Alistofaccompanyingdocumentstothismethodologicalnoteisprovidedintheannex.
1.3 Sampleofbanks
11.TheEUwidestresstestexerciseiscarriedoutonasampleofbankscoveringatleast50%of
the national banking sector in each EU Member State, as expressed in terms of total
consolidatedassetsasofendof2013.CAsandtheECBcanexpandthesampleiftheydeem
thisnecessary.ThefulllistofbanksfortheEUwidestresstestisreportedintheAnnex.
8
1.4 Scopeofconsolidation
12.The exercise is run at the highest level of consolidation. The scope of consolidation is the
perimeter of the banking group as defined by the CRR/CRD IV. The exclusion of insurance
activities is to be done both from the balance sheet and the revenues and costs side of the
P&L.
1.5 Macroeconomicscenariosandmarketriskshocks
13.The EUwide stress test will assess the resilience of EU banks under a common baseline and
adverse macroeconomic scenario developed in close cooperation with the CAs, European
Commission, the ESRB and the ECB. The scenarios will cover the period of 2014 2016.
Macroeconomicscenarioswillbeagreedbyparticipatingauthorities.
14.Forthetreatmentofpositionsheldfortrading(HfT),availableforsale(AfS)anddesignatedat
fair value through profit and loss (FVO) including sovereign positions in these accounting
categoriesasetofcommonstressedmarketparametersisdirectlyappliedonthepositions.
15.CAsmaydevelopadditionalandspecificmacroeconomicsensitivitiesandmarketriskshocks
in order to incorporate country specific features as deemed necessary. Banks are, however,
required to submit to the EBA the results based on the common macroeconomic scenarios
andmarketriskshocks.TheEBApublishedresults shouldallow understandingtheimpactof
the common scenarios and shocks in isolation, consistently with the objective of ensuring
crossbankconsistencyandcomparability.
1.6 Timehorizonandreferencedate
16.The exercise is carried out on the basis of the consolidated yearend 2013 figures and the
scenarioswillbeappliedoveraperiodofthreeyears(from2014to2016).
1.7 Definitionofcapital
17.The impact of the EUwide stress test will be assessed in terms of Common Equity Tier 1.
AdditionalTier1andTier2instrumentseligibleasregulatorycapitalundertheCRRprovisions
thatconvertintoCommonEquityTier1orarewrittendownuponatriggereventarereported
asaseparateitemiftheconversiontriggerisabovethebanksCommonEquityTier1ratioin
theadversescenario.
18.ThedefinitionofCommonEquityTier1thatisvalidduringthetimehorizonofthestresstestis
used (i.e. CRR/CRD IV definition of capital with transitional arrangements as per December
2013, December 2014, December 2015 and December 2016). Capital components subject to
transitionalarrangements(forinstance,deferredtaxassets)arereportedasmemoitemsand
publicly disclosed. The regulatory framework regarding capital requirements should also be
applied as of these dates. Data provided as starting point (31 December 2013) is to be
9
computedaccordingtoCRR/CRDIVasofthefirstdayofapplicationofthenewregulation,i.e.
1stJanuary2014.
19.CAs may, in addition, assess the impact of the stress test on other yardsticks, including fully
loadedCRR/CRDIVCommonEquityTier1.Possiblesupervisorymeasuresmaybelinkedtoone
ormoreyardsticksatthediscretionoftherelevantCA.
1.8 Hurdlerates
20.ForthepurposeoftheEUwidestresstestthefollowinghurdleratesareappliedasaminimum
acrossallparticipatingbanks:
Thecapitalhurdlerateissetat8%CommonEquityTier1ratioforthebaselinescenario.
Thecapitalhurdlerateissetat5.5%CommonEquityTier1ratiofortheadversescenario.
21.TherelevantCAmaycalibratepossiblesupervisorymeasuresbasedonaladderofintervention
points arising from the stress test and may also more formally set higher hurdle rates and
formallycommittotakespecificactionsonthebasisofthosehigherrequirements.
1.9 Staticbalancesheetassumption
22.Givenitsobjectives,theEUwidestresstestisconductedontheassumptionofastaticbalance
sheet.Thezerogrowthassumptionappliesonasolo,subconsolidatedandconsolidatedbasis
forboththebaselineaswellastheadversescenario.Assetsandliabilitiesthatmaturewithin
thetimehorizonoftheexerciseshouldbereplacedwithsimilarfinancialinstrumentsinterms
oftype,creditqualityatdateofmaturityandoriginalmaturityasatthestartoftheexercise.
Noworkoutofdefaultedassetsisassumedintheexercise.Inparticular,nocapitalmeasures
takenafterthereferencedate31/12/13aretobetakenintoaccount.
23.The static balance sheet assumption should also be assumed for assets and liabilities
denominated in currencies other than domestic (reporting) currency, hence the effect of
currencyfluctuationsshouldnotaffecttheenforcementofthisassumption.
24.Furthermore, it is assumed in the exercise that banks maintain the same business mix and
model (geographical, product strategies and operations) throughout the time horizon. With
respecttotheP&L,revenueandcost,assumptionsmadebybanksshouldbeinlinewiththe
constraintsofzerogrowthandastablebusinessmix.
25.Whiletheexerciseisbasedonthestaticbalancesheetassumptionandtheresultsshouldbe
presented accordingly, CAs may deem it useful to analyse banks response functions and
managerialactionsformitigatingtheimpactofthestresstestaswellasvariablessuchasthe
evolutionofcreditgrowthunderthescenariosaspartoftheprocessforidentifyingpossible
supervisorymeasuresforaddressingpossiblecapitalshortfallsemergedintheexercise.
10
26.Exemptions from the static balance sheet assumption can be granted due to the likely
completion of mandatory restructuring plans that have been publicly announced before
31/12/2013. These restructuring plans need to be formally agreed with the European
Commission. These exemptions should be applied consistently across all components of the
balance sheet. Banks that are subject to a restructuring plan are supposed to align their
projectionsunderthebaselinescenariowiththoseforeseenintheirrestructuringplans.Under
theadversescenario,banksareexpectedtousemoreconservativeprojectionsinlinewiththe
adverse stress test scenario. For example, but not limited to, revenues from asset disposals,
interest rates on new business, and the frequency of migration of performing loans into
default should be less favourable under the adverse scenario compared to the baseline
scenario. Nevertheless the requirements set by DG Comp plans will not be challenged. The
conservativeprojectionsundertheadversescenariowillbesubjecttoplausibilitychecksinthe
quality assurance analysis, including a comparison against relevant benchmarks. This could
lead to requests for revisions to banks projections in the context of the quality assurance
process.
1.10 Riskcoverage
27.TheEUwidestresstestisprimarilyfocusedontheassessmentoftheimpactofriskdriverson
the solvency of banks. Both trading and banking book assets (including offbalance sheet
exposures)aresubjecttostressatthehighestlevelofconsolidationofthebankinggroup.
28.Banksarerequiredtostresstestthefollowingcommonsetofrisks:
Creditrisk;
Marketrisk;
Sovereignrisk;
Securitisation;
Costoffunding.
29.Althoughthefocusoftheexerciseremainsoncreditandmarketrisk,banksarealsorequested
toassesstheimpactoninterestincome,includingtheincreaseinthecostoffunding,overthe
stresstest time horizon. In addition, capital requirements for operational risk are also taken
intoaccountintheexerciseusingasimplifiedapproach.
30.CAsmayincludeadditionalrisks(e.g.sectorspecificrisks,conductrisk)beyondthecommon
setidentifiedfortheEUwidestresstest.Banksare,however,requiredtosubmittotheEBA
the results based on the common set of risks. The results published should allow the
understanding of the impact of the common set of risks in isolation, consistently with the
objectiveofensuringcrossbankconsistencyandcomparability.Inparticular,methodological
11
requirementssetoutinthisnotedefineminimumrequirementstobefollowedbyallbanks.
DeviationsbyCAsmayonlyleadtoamoreseverestressimpact.
1.11 Overviewonstresstestingmethodologyaccordingtorisk
type
31.Thecreditrisksectioncoversallcounterparties(e.g.sovereigns,institutions,financialandnon
financialfirmsandhouseholds)andallpositionsexposedtorisksstemmingfromthedefaultof
acounterparty(loanportfoliopositions,heldtomaturitysecuritiespositionsandpositionsin
theavailableforsaleanddesignatedatfairvaluethroughprofitandloss).Creditriskwillbe
assessedthroughtheimpactoftheeconomicscenarioondefaultandlossparameters.
32.The market risk section covers all positions exposed to risks stemming from the changes of
market prices, including counterparty credit risk. Market risk is to be assessed by applying a
commonsetofstressedmarketparameterstopositionsheldfortrading,availableforsaleand
positions at fair value through profit and loss including sovereign positions in these
accounting categories. Credit spread risk in accounting categories sensitive to market risk
evolutionsarealsosubjecttothestressedmarketparameters.
33.For the purpose of the EUwide stress test a common approach for the application of
prudential filters for assets in the AFS portfolio, including sovereign exposures, is required
acrossallEUcountries.MinimumtransitionalrequirementsassetoutinPartTen,TitleI of
theCRRapplytoall EUcountriesindependentof nationalderogations,e.g. including20%of
unrealisedlossesin2014,40%in2015and60%in2016.Theimpactonthestresstestresults
willbepubliclydisclosed.Exposuresarecoveredinaccordancewiththeircurrentaccounting
treatment under the credit risk section (amortised cost approach, e.g. held to maturity
securities positions) or/and market risk section (marktomarket approach, e.g. held for
trading,availableforsale).
1.12 Process
34.TheprocessforrunningthecommonEUwidestresstestinvolvesclosecooperationbetween
the EBA, the CAs and the ECB. Common agreement on the scenarios, methodology and
templates is to be followed by direct engagement with participating banks by CAs. CAs are
responsible for conveying the instructions on completing the exercise to banks and receive
informationdirectlyfrombanks.TheEBAcoordinatesthisexerciseincooperationwiththeECB
(incaseofSSMcountries)andhostsacentralQ&Afacility.TheEBAactsasadatahubforthe
final dissemination of the common exercise. The EBA also provides some common EU
benchmarks toCAsfor thepurposesofconsistencychecks.CAs and theECB areresponsible
forthequalityassuranceprocess,aswellasforcommunicatinganyadditionalsensitivities(on
topofthecommonEUwidescenario)andthesupervisoryreactionfunction.
12
35.Assetqualityreviews(AQRs)arebeingundertakenacrosstheEUin2014andtheoutcomesof
theseAQRsmayhelpfullyinformthestartingpointforthestresstest.Thetechnicaldetailson
howtheresultsofAQRswillbelinkedtothestresstestaredevelopedbyCAs.
13
Table1:OverviewofrisktypesandtheirtreatmentintheEUwidestresstest
Scope1
Methodology
Creditrisk
Marketrisk
Securitisationrisk
Sovereignrisk
Allassetsinthebanking
bookwhichareexposed
tocreditriskexcluding
counterpartycreditrisk2,
onandoffbalancesheet
positions,IRBandSTA
portfolios.Methodology
alsoappliedtoIRC.
Allfinancialassetsand
liabilitiesassessedatfair
value(positionsinHfT,
AfSanddesignatedatfair
valuethroughprofitand
lossportfolios),including
counterpartycreditrisk.
Hedgeaccounting
portfolios.Securitisations
heldatfairvalue.3
Securitisationandre
securitisationpositions
assessedatfairvalue
(HfT,AfS,designatedat
fairvaluethroughprofit
andloss)andamortised
costpositions.ABCP
(incl.ABCPliquiditylines)
excludedbutsubjectto
eithertheregularRWA
treatmentormarketrisk
methodology.
Sovereignexposures
(directdebtexposures
aswellasindirect
exposurestocentral
andlocalgovernments).
Assessedatfairvalue
(HfT,AfS,fairvalue
throughprofitandloss)
andamortisedcost
positions.
Simplifiedapproach:
bankspecificreductionin
NTIbasedonhistorical
variation.Comprehensive
StressedpointintimePD
approach:revaluationof
andpointintimeLGDfor
positionsbasedon
provisioning.Potential
marketriskparameters.
ratingmigrationand
CVAhaircutsforOTC
stressedIRBregulatory
derivatives.Defaultof
parametersforRWA.
largestcounterparty
(excl.CCP,market
infrastructure,
sovereign).
Allfairvaluepositions:
applicationofmarket
IncreaseofRWA
riskmethodologyfor
dependingonriskprofile impactofchangesin
marketprices.
ofthepositions(three
Regulatorybanking
riskbuckets).
bookpositions:
Impairmentestimates
forpositionsnotheldfor applicationofcreditrisk
methodologyfor
trading.Applicationof
marketriskmethodology impairmentestimates
basedonrating
forfairvaluepositions.
migrationdefinedby
ESRB/ECB.
Costoffundingand
interestincome
Other
Interestbearingassets
andliabilities.
Nonfinancialtangible
assets(realestate
exposures),
participations.Other
income(noninterest,
nontradingincome)and
expenses.Operational
risk.
Sensitivityanalysisof
theP&Leffectfor
deteriorationin
wholesalefunding
marketsanda
significantincreasein
retailfundingcosts.
Banksownestimates
butsubjectto
constraintsonpass
through.
Haircutsasforreal
estatefundsgivenin
marketriskfactors;
impairmentfor
participationsestimated
bybanks.Simplified
approachorinternal
estimatesforother
income;fixedexpenses.
Fixedincreasefor
operationalriskexposure
value.
Fordetailsonthescopeofeachtypeofriskspleaserefertosubsection1.11.
Thecreditrisksectionappliestothedeterminationofkeycreditparameters(i.e.PDsandLGDs);themarketrisksectionsetsouthowEADsandCVAwillbestressed,aswellastheapproachforcalculating
counterpartycreditdefaultlosses.
Fordetailsonthescope,inparticularthetreatmentoffairvalueliabilities,pleaserefertosection3.2.
14
Creditrisk
P&LandOCIimpact
Expectedlossbasedon
pointintimeparameters
usedtocalculatecredit
risklossesonperforming
portfolioexcl.fairvalue
positionssubjectto
marketriskapproach.
Additionallosseson
defaultedportfoliobased
onworseningLGDsand
portfoliocharacteristics.
RWAimpact
StressedRWAinIRBand
STA,includingRWAfor
defaultedassetsandIRB
excessorshortfall.RWA
flooredat2013levels.
Marketrisk
ReductioninNTIorother
comprehensiveincome
impactduetofairvalue
variation;lossfrom
defaultoflargest
counterparty;lossfrom
CVAhaircuts.Valuation
adjustmentsondebt
securitiesandP&Lgains
resultingfromcredit
spreadwideningofown
liabilitiescannotbetaken
intoaccount.
RWAincreaseforVaR,
SVaRandCRMcapital
chargesdueto
predefinedassumptions
(constantRWAforbanks
usingsimplified
approach;VaRreplaced
bySVaRforbanksusing
comprehensive
approach,fixedscaling
forCRM).IRCandCVA
increasedueto
worsenedrisk
parameters.
Securitisationrisk
Sovereignrisk
Impairmentsfor
notheldfortrading.
Marktomarket
treatmentforpositions
atfairvalueinlinewith
marketrisk
methodology.
DirectP&LandOCI
impactforpositions
accountedforatfair
value.Further
impairmentestimates
forregulatorybanking
bookassetsexcl.fair
valuepositionssubject
tomarketriskapproach.
RWAincreaseforall
basedonpredefined
riskbuckets.
RWAincreasedueto
worsenedrisk
parametersinIRBand
STA.
Costoffundingand
interestincome
Other
Increaseofcostof
fundingpartially
mitigatedbyan
increaseininterest
income.
Impairmentsonnon
financialtangibleassets
(realestateexposures)
andimpairmentsfor
participations.Direct
effectofincomeand
expenseassumptions.
N/A.
Capitalrequirementfor
operationalrisk+15%of
yearonyearabsolute
changeinoperating
profit.
15
2. Dataneeds
2.1 Templatestructure
36.Takingintoaccountthedefinedfeaturesofthestresstest,thetemplateshavebeenorganised
asfollows4:
Core templates: Data required as minimum adequate reporting requirement for the stress
testexercise,collectedandprocessedbytheEBA(viaCAs);templatesdesignedbytheEBAin
cooperationwithCAs,qualitytobeassessedbyCAs.
Advance Data Collection (ADC): Data collected prior to commencing the stress test
exercise, intending to supply benchmarks to the national CAs as input to the stress test
exercise.
CalculationSupportandValidationdata(CSV):Datarequiredforstatisticalanalysesofthe
resultsofthestresstesttobesuppliedtoCAsasinputtotheirqualityassuranceprocess;
tobeusedaswelltoautomaticallypopulatetransparencytemplates.
Transparency(TR):Dataonstresstestoutcomestobedisclosedonabankbybankbasis.
Additional templates: Data not required by the EBA but can be required, hosted and
processed by CAs for production and validation of stress test results; proposed templates
designedbyEBA(incooperationwithCAs)butusagedecidedbyCAs.
Calculation support and validation data (CSV): Detailed data on stress testing inputs,
intermediate steps and results for conducting the stress test and validation of results by
CAs; translation of methodology and related information into templates; formalised
supportforcalculatingthestressimpactperrisktype.
37.AsregardsthesubmissionrequirementsfromCAstoEBA,allcoretemplatesneedtobefilled
inandprovidedtotheEBA.AdditionaltemplatesdonotneedtobesubmittedtotheEBA.
ThetemplatesetwillbedistributedtobanksviaCAs.
16
Table2:Overviewoftemplatestructure
CollectionType
AdvanceData
Collection(ADC)
Calculation
Supportand
Validationdata
(CSV)
Transparency(TR)
CoreTemplates
AdditionalTemplates
1.ADC_CreditRisk_MAN
2.ADC_BalanceSheet_MAN
3.CSV_CR2014Baseline_ADD
6.CSV_CR2014Adverse_ADD
9.CSV_CreditRisk_MAN
10.CSV_Funding_MAN
11.CSV_EvolutionofP&L_MAN
12.CSV_MarketRiskSimp_MAN
13.CSV_MarketRiskComp_MAN
14.CSV_CVAbasis_ADD
15.CSV_AFSFVOAssets_ADD
16.CSV_Sovereign_MAN
17.CSV_RWAGeneralEvo_MAN
18.CSV_RWASTAFloor_MAN
19.CSV_RWAIRBFloor_MAN
20.CSV_RWATradingBook_MAN
21.CSV_SecuritBBSTA_ADD
22.CSV_SecuritTBSTA_ADD
23.CSV_SecuritBBIRB_ADD
24.CSV_SecuritTBIRB_ADD
25.CSV_SecuritSummary_MAN
26.CSV_Capital_MAN
27.CSV_RestructScenarios_MAN
28.TR_Summary
29.TR_CreditRisk
30.TR_EvolutionofP&L
31.TR_RWA
32.TR_MarketRisk
33.TR_Securitisation
34.TR_Sovereign
35.TR_Capital
36.TR_RestructScenarios
17
2.2 Detailsoncoretemplates
2.2.1
Advancedatacollection
38.Duringtheadvancedatacollection,creditexposuredataandselectedriskparameterswillbe
collected using the template structure of the 2013 EUwide transparency exercise, including
riskparameters.TheinformationwillbeusedtosupplynationalCAswithdatatocarryouta
crosssectional benchmarking of risk parameters like default rates and loss rates. Main
characteristicsofthetemplatesare:
Credit risk data collected as of 31/12/2013; no historical data collected to reduce the
reportingburden;
Portfolio breakdown: In line with COREP and the 2013 EUwide transparency exercise, e.g.
including corporate, SME, Retail and Real Estate related exposures classes; no further
breakdownofassetclasses;
Data:Exposure,RWA,valueadjustmentsandprovisions,defaultandlossrates,PD,LGD,LTV
(allfordefaultedandnondefaultedassets;distinctionforIRBandSTAbanks);
Countrycoverage:Minimumof95%oftotalexposure(intermsofexposurevalue)ortop10
countries;
Inaddition,highlevelbalancesheetdatatobecollected.
39.The submission of the populated advance data collection template set to the EBA via CAs is
compulsoryforallbanksparticipatingintheEUwidestresstest.
2.2.2
40.Selecteddataiscollectedfrombankstoautomaticallyfillaggregatetemplatesandtocarryout
astatisticalanalysisoftheresultsandsupplyittonationalCAs.Thepurposeisnottochallenge
banksresultsonagranularlevelbuttoimplementacrosssectionaloutlieranalysisacrossthe
fullsampleandtoidentifyexceptionsfromthecommonmethodology.5Thetemplateswillalso
beusedforcalculationsupportandvalidationbytheCAs.Datarequiredincludes:
Projected creditrisk parametersto benchmarkfor instancethe evolutionofimpairments or

RWA;
Fundinginstruments,maturitiesandeffectiveinterestrates;
DetailedP&Lprojections;
Forinstancemandatoryrestructuringplans
18
Information on Net Trading Income and detailed market risk information, including e.g.
notional,P&Leffectandsensitivitiesbymarketriskfactorandperscenario;
Projectionsofsovereignexposureandvaluationlosses;
EvolutionofRWAacrossrisktypes,andapplicationofRWAfloorsforcreditrisk;
Exposure values, RWA, impairment and fair value changes for securitisations by accounting
category;
Detailedevolutionofcapitalincludingrestructuringmeasures.
41.ThesubmissionofthepopulatedcorecalculationsupportandvalidationdatatotheEBAvia
CAsiscompulsoryforallbanksparticipatingintheEUwidestresstest.
2.2.3
Transparency
42.TheEBAwillconducttheEUwidestresstestprimarilyasatransparencyexercise.Therefore,
thefocusandpurposeofdisclosuretemplatesistocompileanyinformationrequiredforthe
disclosureofstresstestresultsbytheEBAonabankbybankbasisperyearoftheexercise.
Data included in templates for publication is in line with the disclosure of the 2011 EUwide
stresstestandthetransparencyexercisein2013.Itincludesactualandprojectedbaselineand
adversevaluesfor:
Creditrisk:Exposure,RWA,valueadjustmentsandprovisions,defaultandlossrates6;
Compiled information on main P&L items like net interest income, net trading income,
impairmentsforfinancialassetsandothercomprehensiveincome;
RWAbyrisktype;
Marketriskpositionbymainrisktypes;
Securitisationexposure,RWAandimpairments;
Sovereignexposurebycountry,maturityandaccountingtreatment;
Capital position, components and adequacy (including stressed solvency ratios) and capital
restructuring.
43.The submission of the populated transparency data to the EBA via CAs is compulsory for all
banksparticipatingintheEUwidestresstest.
Inaccordancewiththeadvancedatacollectionandtransparencyexercisein2013nodisclosureofcreditrisk
parametersisenvisaged.
19
2.3 Detailsonadditionaltemplates
2.3.1
44.The stress test calculation support and validation data is a parallel and more detailed set of
templates.Itismeanttotranslatethecommonmethodologicalrequirementsintoaformalised
dataset.Tothisend,thetemplatesincludedetailedinformationontherisktypescoveredand
to allow challenge by CAs on a bankbybank basis. The templates provide CAs and banks
thereforewithformalisedsupporttocalculateorvalidate:
Credit risk: Starting values, detailed evolution of defaulted and nondefaulted assets,
impairmentflowandstockofprovisions,actual,projectedbaselineandadversescenario;
CVA:FairvalueofOTCderivativesbycounterpartygroup,actualandbyscenario;
AFSassetsanddesignatedatfairvaluethroughprofitandloss:Positionbyassetclass,actual
andperscenario;
Securitisation risk: Exposure and stress impact by regulatory and accounting treatment,
actual,projectedbaselineandadversescenario.
45.Creditrisktemplatesincludedincalculationsupportandvalidationdataallowamoregranular
breakdownofCOREPassetclassesinordertoallowforinstanceforcorporateorretailasset
classes to display specific real estate related exposures (e.g. buytolet). The more detailed
breakdown has been defined to allow reaggregating to COREP classes. This is seen vital for
populatingthetransparencydatawhichwillineithercasebebasedincommonCOREPclasses.
Consequently,thetemplatescanalsobeusedforcollectingdataonthelevelofCOREPclasses
withoutusingthemoregranularassetclassbreakdowngiven.
46.Templates are based on the common methodology for the EUwide stress test 2014. These
templatesareprovidedtotheCAsforvalidatingbanksresults,buttheiruseisnotcompulsory
andCAsmaydecidetousedifferenttemplates.
20
3. Quantificationofdifferentrisktypes
3.1 Creditrisk
3.1.1
Overview
47.Banks are required to translate the macroeconomic scenarios provided into the
corresponding credit risk impact on both the capital available and the regulatory capital
requirements(RWA).
The methodology for estimating future credit risk impairments and thus the P&L impact on
capitalisdescribedinsubsection3.1.7.
The methodology for estimating future capital requirements, including the regulatory
parametersforthenecessaryRWAcalculations,isdescribedinsubsection3.1.8.
These projections will be based on default and loss parameters (both pointintime and
regulatory) that will depend on the banks business model, asset portfolios and internal
models.
48.The scope of this subsection covers all counterparties (e.g. sovereigns, institutions, financial
andnonfinancialfirmsandhouseholds)andallpositionsexposedtorisksstemmingfromthe
default of a counterparty (loan portfolio positions, held to maturity securities positions and
positions in the available for sale and designated at fair value though profit and loss). This
includesbydefinitionallassetsinthebankingbookwhichareexposedtocreditriskincluding
counterpartycreditrisk7andfollowstheCRR/CRDIVdefinitionofcreditrisk(includingonand
offbalancepositions).Fairvaluepositionssubjecttomarketriskapproach(AfSanddesignated
atfairvaluethroughprofitandloss)areexcludedfromtheestimationofdefaultedassetsand
impairments as specified in section 3.1.7 but not from the estimation of RWA specified in
section 3.1.8. Specific requirements for securitisation position are separately covered in
section3.3.Moreover,banksarerequiredtodistinguishbetweenSTAandIRBportfolios.8The
methodology described in this subsection also applies to the capital charge for incremental
defaultandmigrationrisk(see3.2.9).
49.In addition to the risk of default covered in this subsection, all assets subject to markto
market valuation (either through the P&L or directly through capital) are subject to price
effects(i.e.achangeincreditspreads)underthemarketriskmethodology(seesection3.2).

Thissectioncoversthekeydefaultandlossparametersthatdrivecounterpartycreditrisklosses(i.e.PDsandLGDs).
TheprescribedmethodforcalculatingExposureatDefaultandCVAunderthestressscenariosisprovidedintheMarket
Risksection(3.2).
IRBportfoliosarefurtherdifferentiated,wherenecessary,accordingtothefoundation(FIRB)oradvanced(AIRB)
approach.
21
50.Banks are required to assess the impact of given macroeconomic scenarios (baseline and
adverse)ontheirfuturecreditrisklossesandcreditquality.Thisrequirestheuseofstatistical
methods (satellite models) that estimate the relationship between macroeconomic and
bankingvariables.Thiswillincludethefollowingmainsteps:(1)estimatingvaluesfordefault
and loss rates under the predefined scenarios on the basis of internal models or, if not
available, on the basis of benchmark parameters, (2) computing default flows based on the
defaultrates,(3)computingimpairmentflowsasthebasisforprovisionsthateffecttheP&L
under the scenarios, and (4) calculating the impact on capital requirements. The different
stepsandtheuseoftheresultsaresummarisedinthefigurebelow.
Figure1:Summaryofcreditriskmethodology
Startingvalues
(see3.1.5Startingvaluesforriskparameters)
Applicationofthemacroeconomicscenarios
(see3.1.6Riskparameterandexposureevolution)
Calculationofdefaultandimpairmentflows
(see3.1.7Calculationofdefaultedassets,impairmentsandassociatedbenchmarks)
Impairments
(see3.1.7Calculationof
defaultedassets,
impairmentsandassociated
benchmarks)
Ratingmigration
(see3.1.8ImpactonCredit
RWAandassociated
benchmarks)
Furtherimpact
(see3.1.9RWAfordefaulted
assetsandIRBexposure
shortfall)
51.Fortheestimationofimpairments,banksarerequiredtofollowthemethodologydetailedin
thisdocument.Fortheestimationofcapitalrequirements,banksshouldadheretoregulatory
requirementsbasedonstressedregulatoryriskparameters.
52.As the translation of the scenarios into changes in risk parameters nevertheless includes a
suitablelevelofdiscretion,participatingbanksareencouragedtomakeuseofhistoricaldata
and multiple benchmarks provided by the EBA and ECB to ensure adequate consistency
between historic observations, model output and the results under the scenarios of the
exercise. The following subsections cover each part of the credit risk methodology in more
detail.Thenamingconventionsfortherelevantvariables(includingexposures,collateraland
22
risk parameters) are defined at the start. It is essential that all participating banks strictly
adheretotheseconventions.
3.1.2
Highlevelassumptionsandconstraints
53.For reasons of transparency and comparability, the overall framework assumes that the
balancesheetisheldstaticasofend2013.
54.Consistent with the static balance sheet assumption, banks are not allowed to replace
defaulted assets. Defaulted assets are moved into the defaulted assets stock, reducing non
defaulted assets and keeping total exposure constant. Furthermore, for the purpose of
calculating exposures, it is assumed that no chargeoffs or writeoffs take place within the
threeyearhorizonoftheexercise.9
55.Within the credit risk framework, the initial residual maturity is kept constant for all assets.
Thismeansthatassetsdonotmature.Forexample,a10yearbondwithresidualmaturityof5
yearsattheonsetoftheexerciseissupposedtokeepthesameresidualmaturityof5years
throughouttheexercise.Note,thattheconstantresidualmaturityappliesinparticulartothe
calculation of credit risk RWA (especially the maturity factor used in AIRB but also to some
provisionsinSTAwhichallowfavourableriskweightsforshorttermexposures).
3.1.3
Exposureclassesandassetclasses
56.Forthepurposeofthisstresstest,banksarerequiredtoreporttheirexposureusingtheasset
classes specified below which are based on the IRB exposure classes. Exposures in the STA
needtobemappedintotheseclasses.
57.Asageneralprinciple,banksarerequiredtofollowandsubmitthedatatotheEBAinthegiven
templatesandinaccordancewiththeCRR/CRDIV.Moreover,basedthereon,CAscanrequire
participatingbankstoreportadditionalbreakdownsforexposureswheretheyseesignificant
risks.
58.The original exposure at the start for each of the defined asset classes should match the
exposurereportedforeachcorrespondingCOREPexposureclass.
59.Where exposures are transferred to other classes through credit risk mitigation techniques
(substitutionapproach)thistransferhastobeperformedinlinewiththefollowingassetclass
definitionsandshouldbereportedinassetsclassesaftersubstitution.
60.ThefollowingtablecontainsanoverviewoftheCOREPIRBexposureclasses(seeCRRArt.147)
andmappedSTAexposureclasses(seeCRRArt.112)10:

ThisisnottobeconfusedwiththeinclusionofwriteoffsinthegenerationofLGDparameterswhichareimplicitly
assumedwhereapplicable.
10
Defaultedassetsaretobereportedaccordingtothenatureofthecounterparty.
23
Table3:OverviewoftheIRBandSTAexposureclasses
IRBexposureclass
Centralgovernmentsorcentralbanks
Institutions
Corporates
ofwhich:SpecialisedLending
ofwhich:SME
Retail
Securedbyrealestateproperty
SME
NonSME
QualifyingRevolving
OtherRetail
SME
NonSME
Equity
Securitisation
Othernoncreditobligationassets
MappedSTAexposureclass
Centralgovernmentsorcentralbanks+regional
governmentsorlocalauthorities
Publicsectorentities+MultilateralDevelopment
Banks+InternationalOrganisations+institutions+
coveredbonds
Corporates+securedbymortgagesonimmovable
property(Corporateshare)+itemsassociatedwith
particularlyhighrisk,claimsoninstitutionsand
corporateswithashorttermcreditassessment+
CollectiveInvestmentsUndertakings(CIU)
Corporates(SpecializedLendingshare)
Corporates ofwhich:SME
Retail+securedbymortgagesonimmovable
property(Retailshare)
Securedbymortgagesonimmovableproperty
(Retailshare)
(RetailSMEshare)
(RetailNonSMEshare)
Retail(qualifyingrevolvingshare)
Retail(nonqualifyingrevolvingshare)
Retail ofwhich:SME
Retail(nonSME,nonqualifyingrevolving
share)
Equityexposures
Securitisationpositions
Otherexposures
61.Thefollowingtablecontainsanoverviewofmoredetailedassetclassesthatbanksmightbe
askedtoprovideintheadditionaldatatemplatesdependingondatarequirementsspecified
bytherelevantCA.
Table4:Overviewofdetailedassetclasses
IRBexposureclass
Centralgovernmentsorcentralbanks
Institutions
Corporates
ofwhich:SpecialisedLending
ofwhichrealestaterelated
ofwhich:SME
ofwhich:OtherCorporate
Retail
Securedbyrealestateproperty
SME
NonSME
ofwhich:OwnerOccupier
24
IRBexposureclass
ofwhich:Buytolet
ofwhich:Othersecuredbyrealestate
QualifyingRevolving
OtherRetail
SME
NonSME
Equity
Securitisation
Othernoncreditobligationassets
62.Withinthecorporateassetclass:
Real estate related exposures are those relating to the sales and/or letting of residential or
commercialproperty;
OthercorporatereferstoexposuresintheCOREPclassCorporatewhichareneitherSMEnor
SpecialisedLending.
63.Withintheretailexposureclasssecuredbyrealestateproperty:
OwnerOccupierreferstoloanssecuredonresidentialrealestateoccupiedbytheowner;
Buytoletreferstoloanssecuredonresidentialrealestaterentedfromtheownerbyathird
party.
3.1.4
Definitions
64.Historical data and projections under the scenarios: In addition to the exposure class
mapping,banksarerequiredtoapplyconsistentdefinitionsforthefollowingitems:
BookValue,accordingtoIFRS(orlocalGAAPifapplicable).
Original Exposure,asdefinedinCOREP:Thisexposurefigureispreconversionfactors(CCF)
and pre credit risk mitigation techniques and before any deduction of provisions.
(STA:Column1OriginalExposurePreConversionFactorsinCOREPtemplateReportingon
ownfundsandownfundsrequirements,Sheet:CRSA,IRB:Column2OriginalExposurePre
Conversion Factors in template Reporting on own funds and own funds requirements,
sheetCRIRB).
Collateral with substitution effects, as defined in COREP (STA: Sum of columns 5 to 8

Unfunded Credit Protection: Adjusted Values (Ga) and Other Funded Credit Protection, in
thesameSTAtemplateasabove,IRB:SumofColumns4to6UnfundedCreditProtectionand
OtherFundedCreditProtectioninthesameIRBtemplateasmentionedabove).
Exposure (Exp) is the nondefaulted exposure after substitution effects and post CCF.
Defaultedassetshavetoberemovedfromthisfigureandarereportedinaseparatecolumn.
Expisthestartingpointfortheimpairmentcalculation.
25
ForIRBportfolios,banksshouldusethedefinitionofColumn11(ExposureValue)inthe
sameCRIRBtemplateasaboveasastartingpointandremovedefaultedassets.
For STA portfolios, banks need to calculate a post CCF equivalent of Column 11 (net
exposure after CRM substitution effects pre conversion factors) in the same CR SA
template as above. Provisions have already been deducted (Column 3 in CR SA) at this
point and need to be added to exposure. Defaulted assets must not be shown in this
figurebutalsointherespectivecolumns.
Value adjustments and provisions should be computed in accordance with the accounting
frameworktowhichthereportingentityissubjectandtoArt.34andArt.110oftheCRR.
Funded Collateral (available) including real estate collateral deviates from the COREP
definition.ItcoversallfundedcollateralthatisavailabletocovertheexposureExp(defined
above). Only CRR/CRD IV eligible collateral and only the banks share of collateral in case
collateral is assigned to several debtors is to be reported, no regulatory haircuts should be
applied. Banks should comment in a covering note on how the collateral values have been
determined,inparticularhowoftenappraisalsarerefreshed.
Funded Collateral (capped) follows the definition of the available funded collateral (above)
butcollateralhastobecappedattheexposurelevel.Thismeansthatattheexposurelevel,
collateralcannotbehigherthantherespectiveexposure.
The definition of stock of defaulted assets (Def Stock) has to be based on the banks
regulatory default recognition procedures in place, which will generally involve payments
beingoverdueorthecustomerbeingunlikelytopay.
Stockofprovisions(ProvStock)isastockvariableanddefinedasallowancesforindividually
andcollectivelyassessedfinancialassets(asinFINREP,table7,columns8,9).
Thedefaultflow(DefFlow)measurestheamountofassetsthatdefaultedduringagivenyear
(DefFlowyeartodate,e.g.forthestartingvalueassetsthathavenewlydefaultedin2013).
As Def Flow is used to calculate the default rate (which is a PD proxy), it must include all
defaulteventsthatoccurduringayear.Thedefaultflow(DefFlow)shouldalsoincludeassets
thatwerereclassifiedtoe.g.(distress)restructuringportfoliosorsimilarconstructionsduring
the observation period. Banks should comment on the default definition applied in an
accompanyingnote.
Impairmentloss(ImpFlowNew)isaflowvariableanddefinedonthebasisofimpairmenton
(non)financial assets (FINREP, table 16.7, column 010; reported yeartodate, i.e. for the
startingvalueprovisionsthathavebeensetasidein2013).However,therearetwoimportant
adjustmentstotheFINREPfigure:(i)theflowshouldbereportedfornewlydefaultedassets
only, (ii) the flow figures should also include direct writeoffs / chargeoffs of securities or
otherassetswhosebookvalueisreducedwithoutcreatingaprovision.Theguidingprinciple
forthisfigureisabesteffortpointintimeimpairmentflow,capturingallcreditriskrelated
26
adjustments,regardlessifthosetaketheformofprovisionsornot.Inlinewithparagraph54,
writeoffs can be only taken into account for historical data. Also for historical data, the
impairment loss should correspond to total impairments of newly defaulted assets and not
onlytheadditional duringtheperiod,i.e.thestock ofimpairmentson nondefaultedassets
thatexistedatthebeginningoftheperiodshouldnotbededucted.
Impairmentlossfordefaultedassets(ImpFlowOld)isaflowvariableanaloguetoImpFlow
Newbutdefinedfordefaultedassetsatthebeginningofeachperiod.
Stock of provisions (Prov Stock) and loss (Imp Flow New)needtobereportedastotal per
definedassetclassandbrokendowninnewandolddefaultedassetsandinthecaseofthe
stockofprovisionsalsofornondefaultedassets.
Regulatory risk parameters (PDreg and LGDreg) refer to those parameters used for the
calculation of capital requirements as prescribed by the CRR/CRD IV and should also be
appliedbybanksforthecalculationofRWAoverthestresstesthorizon.
ELregistheexpectedlossbasedonregulatoryriskparametersfollowingtheprescriptionsof
theCRR/CRDIVforIRBexposures.
TheLTVshouldbereportedforselectedrealestaterelatedexposureclasses(seetemplate)as
the exposureweighted average of the LTV at loan level where LTV at loan level is given by
exposure divided by real estate property value. Exposure and funded collateral follow the
definitionsgiveninthisparagraph.
65.Historicaldata:Banksarerequiredtoprovidehistoricaldefaultratesandhistoricallossrates
fortheyear2013intheprovidedtemplate.TheCAcanrequirelongertimeseries.Bankshave
toprovidethesedataacrossthesamedimensions(assetclassesandcountries)asothercredit
riskdata.Forthispurposebanksarerequiredtoapplythefollowingdefinitions:
The historical default rate (Def Rate) is defined as the flow of newly defaulted assets (Def
Flow) over exposure at the beginning of the observation period. The default rate for 2013
would therefore be calculated as defaulted assets flow (in 2013) over performing exposure
(end2012)foreachassetclass/region.
Thehistoricallossrate(LossRate)isdefinedasimpairmentloss(ImpFlowNew)overnewly
defaultedassets(DefFlow).
The HerfindahlHirschman Index (HHI) based on exposure values (the sum of squared
exposuressharesacrossallobligorswheretheexposureshareisgivenaswholenumber,i.e.
50beingusedfor50%),andthetotalnumberofborrowers.
66.Projections under the scenarios: Tomakeexplicitthatprojecteddefaultratesandlossrates

can not only be based on historical rates but also on existing pointintime parameters from
internalmodelsthesearedefinedasfollows:
27
Pointintime risk parameters (PDpit and LGDpit) should be forward looking projections of
default rates and loss rates and capture current trends in the business cycle. In contrast to
throughthecycle parameters they should not be business cycle neutral. PDpit and LGDpit
shouldbeusedforallcreditriskrelatedcalculationsexceptRWAunderboth,thebaselineand
theadversescenario.Contrarytoregulatoryparameters,theyarerequiredforallportfolios,
including STA and FIRB. Here, LGDpit is the exposure weighted LGDpit which takes into
account funded collateral (available). For partially collateralized exposures it is a weighted
averageoftheLGDpitfortheuncollateralizedpartandtheLGDpitforthecollateralizedpart
oftheexposure.
3.1.5
Startingvaluesforriskparameters
67.As a general approach to pointintime parameters, banks are required to adhere to the
followinghierarchy:
ForIRBportfoliosbanksarerequiredtobasetheirestimationofpointintimevaluesontheir
approvedinternalparameterestimationmodels. Thisappliesto PDpitforbothFIRBand A
IRBportfoliosandtoLGDpitonlyforAIRBportfolios.
For IRB banks which cannot extract pointintime parameter from their internal models for
portfolios where there are no approved models in place banks should use nonapproved
models to extract pointintime parameters provided those models are regularly used in
internalriskmanagementandstresstesting.Portfolioswheretherenoapprovedmodelsare
in place include FIRB portfolios w.r.t LGDpit and all STA portfolios w.r.t. both PDpit and
LGDpit.InparticularthisholdsforSTAbanks.
For portfolios where no appropriate internal models are in use for estimating the PDpit or
LGDpit, banks are expected to approximate PDpit via the Def Rate and LGDpit via the Loss
Rate.
68.Irrespectiveofwhichapproachisfollowed,banksarerequiredtoprovideadescriptionofthe
methodology employed for deriving pointintime parameters for all portfolios. Banks are
requestedtosticktoEBAterminologyusedinthisnotewhereverapplicable.
28
Figure2:IllustrationofstartingvalueapproachesfortheinferenceofPDpitandLGDpit
Historical
Approved
pointin
time
modelsin
place
Non
approved
pointin
time
modelsin
place
PDpit
(beforeapplyingthe
scenario)
LGDpit
(beforeapplyingthe
scenario)
DefRate
Noappropriatepointin
timemodelsinplace
(beforeapplyingthe
scenario)
LossRate
(beforeapplyingthe
scenario)
Projected
PDpit
(applyingthescenario)
LGDpit
PDpit
LGDpit
69.Inanycase,theDefRateandtheLossRatebothbasedon2013observationandpotentially
other recent observations will serve as important benchmark parameters to gauge internal
PDpit and LGDpit parameter estimates. Moreover, banks will be subject to crosssectional
comparisonspriortothekickoffoftheexerciseandmightbeaskedtoreviseestimatedpoint
intimeriskparameters.Inaddition,PDpitandLGDpitofIRBportfolioswithinternalmodelsin
usewillbebenchmarkedagainstthelevelofPDregandLGDreg.
3.1.6
Riskparameterandexposureevolution
70.This subsection covers the evolution of risk parameters in the baseline scenario and under
stress,i.e.PDpitandLGDpit.
71.Therearealternativewaystoestimatetherelationshipbetweenpointintimeparametersand
themacroeconomicscenario.Thefollowingparagraphsdescribeahierarchyofmethodsthat
banksshouldadhereto.Asageneralprinciplebanksshoulduseinternalmodelsratherthan
resorttousingbenchmarks.Internalmodelsareexpectedtofocusonstatisticalmodels.
29
In the case of estimating a relationship between pointintime parameters and the macro
economicvariablesattheratingclassleveland,consequently,obtainingparametersforeach
ratingclasswithinaportfolio,theaggregateparametersareobtaineddirectlyastheexposure
weightedaverageoftherespectivebuckets.Theexposuredistributionamongbucketscould
incorporateratingmigrationslinkedtothemacroeconomicscenarioandconsequentlywould
inthiscaserequirethebankstocalculatepointintimemigrationmatrices.Thedistributionof
exposuresacrossbuckets(thatisusedtocalculatethecorrespondingaggregateparameters)
would be the result of multiplying the distribution of exposures at the end of the previous
yearbythepointintimemigrationmatrix.
If the estimation of the relationship between pointintime parameters and the macro
economic variables is done at a portfolio level and, consequently, a single aggregate
PDpit/LGDpit for each portfolio is obtained, the calculated defaulted asset flows should be
distributed to different rating classes in order to avoid that defaults only affect the worst
rating classes. This is consistent with the approach of approximating impairments by using
expectedlosseswhichassumesthatassetsdefaultinallratingclasses.
Whereappropriateforthestresstestingexercise,bankswhichhaveonlypartialcoveragein
termsofmodelsthatallowestimatingarelationshipbetweenpointintimeparametersand
the macroeconomic variables are encouraged to extend the application of the forecast
regardingtheevolutionofthepointintimeparameterstosimilarportfolios(country/sector).
This approach, however, should be clearly identified in the accompanying note provided
separately by banks based on the country and sector breakdown (see paragraph 72). The
extended use of those models is limited to calculation of credit risk losses. As stated in
subsection3.1.8(estimationofRWAimpact),therolloutofnonapprovedmodelsduringthe
stresshorizonforthepurposeofcalculatingRWAisnotallowed.
Bankswhichhavenointernalparameterestimationmodelsinplaceforsomeportfoliosand
that are unable to estimate the evolution of pointintime parameters under scenario
assumptions are asked, for those portfolios, to conduct their estimation of the PDpit and
LGDpit as described in the previous subsection and base it on the benchmark parameters
provided by the ECB (on ELlevel). Benchmark risk parameters are projected over the time
horizon of 2014 to 2016, consistently with both the baseline and adverse macroeconomic
scenarios.
72.Irrespectiveofwhichapproachisfollowed,banksarerequiredtoprovideadescriptionofthe
methodologyemployedforestimatingtherelationshipbetweenpointintimeparametersand
the macroeconomic scenario for all portfolios. Banks are requested to stick to EBA
terminologyusedinthisnotewhereverapplicable.
73.Box1providesanexampleonhowtocalculatethedefaultflowfornondefaultedexposure,
givenmultipleratingclassesincasetheprojectionofdefaultflowsisnotcarriedoutonrating
classlevel.
30
Box1:Defaultflowsandgranularity,anexample
Defaultflowsandgranularity,anexample
Wedefine:
PDpit(t+1)=10%
Exp(t)=100
Wheretheportfoliohastworatingclasses:
Class1(CL1)withaPDpitCL1(t+1)of7.5%andanExpCL1(t)of80and
Class2(CL2)withaPDpitCL2(t+1)of20%andanExpCL2(t)of20
Thentheflowofdefaultedassetsattheendofthefirstyear,DefFlow(t+1),willbeequalto10.Of
the10totaldefaultedassetflow,6willbeassignedtoCL1(=80*7.5%)and4toCL2(=20*20%).
Asresult,theaveragePDpit(t+2)oftheentireportfolio(beforetheapplicationoftheriskparameter
shiftsduetothescenario)willbe9.72%andtheexposure,Exp(t+1),willbe90.
74.Inanycase,banksmusttakeintoconsiderationthepossibleimpactcausedbythedecreasein
the fair value of credit risk mitigants (e.g. shock on real estate prices will impact real estate
collateral).
75.Moreover, banks must take into account the portfolio characteristics of the forecasted
exposuresindefault(includingtimesincedefault).Thegeneralprincipleisthatforanygiven
defaultedassettherequiredprovisionsmayincreasethelongerthisassetisindefault,evenin
a static macroeconomic environment. For example, the (conditional) life time cure rate
naturallydecreaseswithtimeindefaultandthecostsassociatedwithliquidationofcollateral
may also increase. To this end, banks are asked to use a scaling factor (Default Portfolio
Characteristics, DPC) to reflect the distribution of exposures across default classes. The
conceptofaDPCisfurtherillustratedinBox2.
Box2:IllustrationDPC
Illustrationofscalingfactor(DefaultPortfolioCharacteristics,DPC)
Thescalingfactor,DPC,shouldreflecttheportfoliocharacteristicsoftheforecastedexposuresin
default in terms of defaultclasses wherethe LGD forthe stock of defaulted assets is a weighted
average of LGD parameters for distinct default classes. Consistent with the constraint that
defaultedassetsdonotexplicitlycurewithinthestresstesthorizon,themodellingapproachcould
includeatheoreticallycureddefaultclass.
The scaling factor should be based on historic observations of impairments and any automatic
increaseinimpairmentsdueto,forexample,provisioningrulesbasedonincreasedtimeindefault.
The evolution of the scaling factor should itself take into account the economic scenario when
consideringmigrationbetweendefaultclasses,againwithreferencetopastexperience.
DependingontheLGDmodellingapproach,theuseofthescalingfactormaynotbematerial(i.e.
DPC=1).Thismaybethecaseif(i)theLGDparametersconsistentlyincludeallassumedmigration
between default categories (e.g. cure rate assumptions, provisioning rules, cost increases), and if
(ii)therelativeevolutionofLGDparametersisthesamefornewandolddefaultedassets.Inany
31
case,DPCshallnottakeavalue<1.
76.Irrespective of which approach banks follow to calculate stressed pointintime parameters,

banksarerequiredtosupplementthemethodologyrequiredinparagraph68byadescription
ofhowtheyarriveatthepointintimeparameterevolutionforallportfolios.
77.Box 3 describes how to infer stressed pointintime parameters from ECB parameters (for
bankswithoutappropriatepointintimemodels).
Box3:InferringstressedpointintimeparametersfromECBbenchmarks
InferringstressedpointintimeparametersfromECBELbenchmarks
Wedefine:
PDpitBank(0)andLGDpitBank(0)asthebanksstartingvalues
ImpRateBank(0)asproductofPDpitBank(0)andLGDpitBank(0)
ImpRateECB(0)astheECBsbenchmarkstartingvalue
ImpRateECB(1..3)astheECBsbenchmarkvaluesundereachscenario
ThenthePDpitBank(1..3)andLGDpitBank(1..3)canbeinferredfromtheincreaseintheECBbenchmark
parameter. There is obviously no single best solution. Subject to the approval of the national
supervisorbankscanapplytherelativeincreaseequallydistributedbetweenthetworiskparameters
forexample:
PDpitBank(t+1)=PDpitBank(t)*[ImpRateECB(t+1)/ImpRateECB(t)]^0.5and
LGDpitBank(t+1)=LGDpitBank(t)*[ImpRateECB(t+1)/ImpRateECB(t)]^0.5
In any case, banks are expected to produce a conservative risk parameter evolution in line with
historicobservationsthatholdsupwellinapeergroupanalysis.
78.The ECB benchmark parameters will serve as important benchmark to gauge internal PDpit
andLGDpitparameterestimatesunderthebaselineaswellastheadversescenario.Moreover,
banks will be subject to crosssectional comparisons after the submission of the results and
mightbeaskedtoreviseinternalfiguresifdeemedoverlyoptimistic.
79.Consistentwiththestaticbalancesheetassumption(seeparagraph54)nondefaultedcredit
exposure only changes due to the yearly default flows. Market value fluctuations have no
impactonexposureandinparticularcannotdecreaseexposure.Thisincludeschangesinthe
FX rate as stated in paragraph 23. The only exception to this is the calculation of stressed
exposureforcounterpartycreditriskasdefinedintheCRR.Here,banksarerequiredtostress
exposure including netting sets based on the methodology described in section 3.2.
Counterpartycreditriskexposurecannotdecreaseduetofairvaluefluctuations.
80.Banks should estimate the default flow to adjust exposure before the risk weighted assets
calculationforcreditriskfornondefaultedanddefaultedassets.
32
3.1.7
Calculationofdefaultedassets,impairmentsandassociatedbenchmarks
81.This subsection covers the calculation of the impairment losses under the baseline and the
adverse scenario and its relation to the flow of defaulted assets. The section covers the
estimationof:
Impairmentlossesonnewlydefaultedassets(ImpFlowNew);
Impairment losses on old defaulted assets (Imp Flow Old), i.e. defaulted assets at the
beginningofeachprojectedyear.
TheevolutionofthePDpitandLGDpitasdescribedintheprevioussubsectionmustbeapplied
tothecomputationofthedefaultedassetflowandtheimpairmentflowondefaultedassets.
Writeoffsandassumptionsregardingrecoveryflowsondefaultedassetsarenotpermitted(as
describedinparagraph54).
Box4:Impairmentlossesonnewdefaultedassets
Impairmentlossesonnewdefaultedassets
Theflowofimpairmentsonnewdefaultedassetsattimet+1,isgivenby:
ImpFlowNew(t+1)=MAX{0;ELpit(t+1)*ProvStocknondefaulted(t)}
=MAX{0;Exp(t)*PDpit(t+1)*LGDpit(t+1)*ProvStocknondefaulted(t)}
Where:
istheshareofProvStocknondefaulted(t)whichislinkedtoinitiallynondefaultedassetsat
twhichenterintodefaultstatusatt+1.Atamaximumcanbeequaltotheshareofnon
defaultedassetsattwhichenterintodefaultatt+1,i.e.PDpit(t+1).
ProvStocknondefaulted(t)isthestockofprovisionsagainstnondefaultedassetsatt.
This implies that provisions for nondefaulted assets can be used for new defaults given a static
balancesheet.PDpit(t+1)andLGDpit(t+1)bothrefertotheperiodfromttot+1(colloquiallyyeart+1)
and both reflect the impact of the respective scenario (baseline or adverse) on the pointintime
parametersaccordingtointernalmodelsand/orECBbenchmarkparameters.
Thisestimationcannotleadtoadecreaseinthecoverageratiofornondefaultedassets.
Thisthenleadstothefollowingnondefaultedexposureattimet+1:
Exp(t+1)=Exp(t)[Exp(t)*PDpit(t+1)]
82.Box5describestheapproachtoderivetheimpairmentflowonolddefaultedassets.
33
Box5:Impairmentlossesonolddefaultedassets
Impairmentlossesonolddefaultedassets
To take into account the deterioration of asset quality, particularly under the stress scenario,
additionalimpairmentsmustbemadeonolddefaultedassets.Thisshould,however,gobeyondthe
deterioration of the macroeconomic environment during stress and include default portfolio
characteristics(DPC)likethetimeindefaultasdescribedabove.
Theimpairmentlossonolddefaultedexposureisgivenby:
ImpFlowOld(t+1)=
ProvStockOld(t)*MAX{0;[LGDpit(t+1)/LGDpit(t)]*DPC(t+1)1}
Where:
ProvStockOld(t)isthestockofimpairmentsforolddefaultedassets
LGDpit(t+1)istheLGDestimatedint+1forthestockofolddefaultedassets
DPC(t+1)isthechangeinportfoliocharacteristicbetweentandt+1
To ensure consistency, the stock of provisions for old defaulted assets at the end of the stress test
timehorizonshouldatleastcovertheestimated(stressed)pointintimeELfordefaultedassetsatthe
endofthestresstesthorizonforbaseandadversescenario.Thiswillbeassessedbysupervisorsas
partofthequalityassuranceprocess.
If Prov StockOld (t)=0, then the impairmentloss is given by the pointintime LGDpit(t+1) adjustedby
theDPC(t+1).Noadditionalprovisionsarerequiredifadefaultedassethasbeenfullyprovisionedfor.
83.The impairment losses for new and old defaulted assets computed as described above (see
Box 4 and Box 5 respectively) should be applied by banks as a forecast for provisions for
defaultedassets.
84.Provisions for assets that remain as nondefaulted at the end of the horizon should be
recomputedinlinewiththeaccountingsystemsineachnationaljurisdiction.
85.Againstthisbackground,banksshalldemonstratetotherespectiveCAinthequalityassurance
process that, in consideration of the dynamics observed and expected over the course of a
givenscenario,therearesufficientprovisionsonnondefaultedassetssetaside.Inparticular
thecoverageratiofornondefaultedassetscannot decreaseduringtheprojectionperiod.In
anycase,thecoverageratio,i.e.theratiooftotalimpairmentprovisionstoexposurevalue,for
nondefaulted assets cannot be lower than the starting level. Additionally, banks final
coverage ratios and their evolution will be assessed by employing sufficiently granular
benchmarkcoverageratios.
86.TheflowofimpairmentlosseswillgothroughtheP&Las(credit)riskcost.
34
3.1.8
ImpactonCreditRWAandassociatedbenchmarks
87.Banks are required to follow the regulatory framework for the calculation of stressed RWA,
which means that regulatory risk parameters must be applied which will be different from
pointintimeparameters.Therolloutofnewinternalmodelsduringthestresshorizonisnot
tobeconsideredforcalculatingRWA.Both,STAandIRBportfoliosshouldbestressed.
88.Asageneralprinciple,itisexpectedthat,giventhemacroeconomicscenario,notonlypoint
intimebutalsoregulatoryriskparametersworsen.Thisappliestoallapproachesandtoboth,
exposuresandcreditriskmitigationtechniques(theuseofcollateral).
89.Forboth,STAandIRBportfolios,theendof2013levelofRWAservesasafloorforthetotal
RWA for nondefaulted and defaulted assets calculated using stressed regulatory risk
parametersinthebaselineandtheadversescenario.Thisfloormustbeappliedseparatelyfor
IRBandSTAportfolios.
90.The only exemption is due to the likely completion of mandatory restructuring plans11that
have been publicly announced before 31/12/2013. Any RWA reduction due to restructuring
hastobeapprovedbythenationalsupervisorandissubjecttocrosschecksattheEuropean
level.AnysuchRWAreductionmustbecalculatedatthemostgranularlevelforwhichdatais
reportedinthecreditrisktemplate,i.e.acrossassetclassesandcountries.Ifallassetswithin
one asset class (or subclass) within one reported country are to be sold, the risk weighted
assets for this asset class in this respective country can be set to zero. If there are assets
remaining within this granular portfolio, RWA can be reduced in line with the agreed
restructuringplaninawaythattheaverageriskweightthatprevailedinthisportfoliobefore
therestructuringisatleastkeptconstant.Thisappliesalsoifassetsaresoldincountriesthat
areonlyreportedasanaggregateinthecreditrisktemplate.
91.The RWA for standardised portfolios should be calculated following regulatory requirements
basedonthescenariosandassumingratingmigrationbasedonthebanksownmethodology
asappropriate.Accordingly,exposureswhicharedowngradedorwhicharedefaultedmustbe
riskweightedattheappropriateriskweights(e.g.inthecaseofunsecureddefaultedexposure
at100%or150%).
92.The RWA for all IRB portfolios over the scenario horizon must reflect the estimated yearly
defaultflowandimpairmentlossesasdescribedabovewhichmeansthatriskparametersneed
to be updated and applied in accordance to the regulatory framework. Depending on the
ratingmodelsandmethodologyinplacethismightimplymigrationsofborrowersacrossrating
classes and increases of rating classes regulatory PDs/LGDs. Given the adverse macro
economic scenario it is expected, that not only pointintime but also regulatory risk
parametersworsen.Banksshouldusetheirownmethodologyfortheprojectionofregulatory
riskparameters.

11
TheserestructuringplansneedtobeformallyagreedwiththeEUcommission(DGComp).
35
93.Thepresenceofadequatestresstestingmethodologiesisarequirementfortheauthorisation
of the use of internal rating systems for supervisory capital purposes. Banks shall therefore
make use of their stress testing methodologies in place for simulating the impact caused on
capital requirements for credit risk (due to evolution of regulatory PDs and LGDs) by the
application of the EUwide stress test macroeconomic scenario (baseline and adverse). For
consistency reasons (static balance sheet assumption) the exposure is considered constant
over the time horizon of the exercise, as is the residual maturity. However, exposure
composition w.r.t. to rating classes is expected to change due to defaulted asset flows (see
alsoparagraphs55and79).
94. In addition to a stress of the regulatory parameters based on the predefined scenarios, the
rating migration caused by computed default flows has to be taken into account when
calculatingthecapitalrequirementsafterapplicationofthescenarios.TheestimationofRWA
impactisnotonlydonefortheperformingportfolio,butalsoforthedefaultedassets(seenext
subsection).
3.1.9
RWAfordefaultedassetsandIRBexcessorshortfall
95.For AIRB banks, the RWA on new defaulted assets exposures (during the horizon) is
calculatedasfollows:
RWADefFlow(t)=MAX{0;[LGDreg(t)LGDpit(t)]*12.5*DefFlow}
ItisassumedthatELBE(t),i.e.theexpectedlossbestestimateasdefinedinArt.153oftheCRR,is
equaltoLGDpit(t).
96.IRBexcessorshortfallfordefaultedandnondefaultedassetsshallbecalculatedaccordingto
the CRR/CRD IV, where provisions related to exposures shall be determined as described
above.
3.2 Marketrisk
3.2.1
Overview
97.For the purposes of the market risk stress test, the bank sample is divided into banks with
significanttradingactivitiesandbanksforwhichtradingrepresentsalesssignificantbusiness
component.Banks which fulfil either of the two criteria below will be treated as banks with
significanttradingactivities(VaRbankshereafter):
Banks (group level) with at least one VaR model in place, approved by the competent
supervisoryauthorityundertheCRR;
Banks ( g r o u p l e v e l ) whose total market risk capital requirement is greater than 5% of

the total capitalrequirement.
36
Banksnotfulfillingeitherofthesetwocriteria,maystilloptin,orberequiredtobeincludedby
theirNCA.Allremainingbankswillbetreatedasbankswithlesssignificantbusiness(nonVaR
bankshereafter).
98.In accordance with this distinction, VaR banks must follow the approach described in
subsection 3.2.3, hereafter described as the comprehensive approach. Banks that use
approved VaR models only for a part of their portfolio are requested to apply the
comprehensive approach also for the positions not capitalised under VaR models. NonVaR
bankscanchoosetobesubjecttoasimplifiedapproachpresentedinsubsection3.2.2.
99.Firms that we designate to be VaR banks or that elect to be VaR banks must run both the
simplifiedapproachandthecomprehensiveapproach.Theoverallnegativestresstestimpact
resulting from the application of risk factors for VaR banks (or nonVaR bank not using the
simplified approach) should not be less than the prescribed reduction of trading income
components for both baseline and adverse scenarios if the simplified market risk approach
wasapplied(seeparagraph103).
100. The scope of the market risk stress is defined to cover all positions exposed to risks
stemmingfromchangesofmarketprices(includinghedgeaccountingportfolios),i.e.positions
held for trading, available for sale and at fair value through profit and loss.12Securitisation
positions held at fair value are subject to the market risk factors. In addition, banks are
required to estimate impairments for securitisation exposures and stressed RWA in
accordancewithsection3.3ofthismethodology.
101. For the purpose of the counterparty credit default loss stress test, banks are required to
stress exposure based on the market risk scenarios and risk factor shocks described in this
section.
102. Notwithstandingtheaforementioneddistinction,allbanksparticipatingintheexerciseare
requiredtoapplystressedmarketriskfactorsandhaircutstoexposuresheldinavailablefor
saleordesignatedatfairvaluethroughprofitandlossportfolios(fairvalueoption)including
sovereign positions in these accounting categories13. Moreover, sovereign positions held for
tradingneedtobetreatedwiththestressedmarketriskfactorsandhaircutsandreportedin
thecomprehensivemarketrisktemplate(seealsoparagraph191).Accordingly,sections3.2.3,
3.2.4and3.2.6applyalsotobanksusingthesimplifiedapproach,however,onlywithrespect
to assets valued at fair value other than held for trading. For backtoback positions which
might be spread across different IFRS categories, banks are requested to apply the stressed
marketriskfactorstoallpositionsseparatelyanddisplaythestresstestimpactintemplate15
aswellasintemplate13.

12
Alldefinitionsrefertoaccountingcategories.
13
AfSandFVOpositionsotherthansovereignarelinkedtotemplateno.15;sovereignAfSandFVOpositionsareshown
intemplateno.16;heldfortradingsovereignpositionsarereportedintemplateno.13andasmemoitemintemplate
no.16).
37
103. Thethreeyearsimpleaverageofnettradingincome(NTI)definedincompliancewiththe
FINREP definition (Gains or losseson financial assets and liabilities held for trading, net) is
the starting point of the calculation for all banks in the sample (net trading income before
stress).Tothisendandregardlessoftheapproach,allbankshavetoreporttheirnettrading
income of the years 2009 till 2013 (see also section 3.2.2) and the latest 2014 yeartodate
tradingP&Lavailableatthepointwhentheresultswillbecollected.
104. Thereferencedateforapplyingthesimplifiedandcomprehensiveapproachis31/12/2013.
Overthetimehorizonoftheexercise,thenotionalvaluesofallassetsandliabilitiesunderthe
marketriskscopeareexpectedtoremainconstant(staticbalancesheetassumption).
105. Defined benefit pension funds shall be subject to the application of relevant macro
economicvariablesasdefinedinthebaselineandadversescenario.Thesamesetofshocksto
longterminterestratesshouldbetakenintoaccountforthepurposeofcomputingthechange
intheactuarialdiscountrateandshouldbeconsistentwiththeevolutionoflongterminterest
rates as defined in the macroeconomic scenario. Sovereign exposures should be subject to
the haircuts defined in the macroeconomic scenario. The eventual shortfall of assets versus
liabilitiesindefinedbenefitpensionfundsresultingbytheapplicationofthescenariowillhave
animpactinbankscapital.Theimpactshouldbedistributedacrossthethreeprojectionyears
inlinewiththeweightsspecifiedinparagraph113.
3.2.2
SimplifiedmarketriskstresstestapproachfornonVaRbanks
106. Banks without a VaR model in use can choose either to conduct the scenario analysis
described in subsection 3.2.3 or to be subject to a simplified approach for the trading book.
The reasoning of the simplified approach is to apply NTI volatility as a proxy of banks
sensitivitywithrespecttoadversemarketriskconditions.Theapproachiscalibratedinsucha
waythatahighervolatilityinbanksNTIresultsinhigherlossesunderstressedconditions.
107. Under the baseline scenario, 1 times the standard deviation with respect to the previous
threeyears(20112013)representstheoverallbaselineloss14andisassumedtobethestress
impactontheP&Lforthetimehorizonofthestresstest.ForcomputingtheyearlyNTIunder
thebaselinescenario,inthethreeyearsoftheexercisehorizon,theaverageNTIisreducedby
50%for2014,30%for2015and20%for2016oftheoverallbaselineloss(seeBox6foran
illustration).Theoverallbaselinelosscanbeatmostashighastheoveralladverse.
108. Under the adverse scenario, 2 times the standard deviation with respect to the previous
five years (20092013) represents the overall adverse loss and is assumed to be the overall
stressimpactontheP&Lforthetimehorizonofthestresstest.ForcomputingtheyearlyNTI
undertheadversescenario,inthethreeyearsoftheexercisetheaverageNTIisreducedby50
% for 2014, 30 % for 2015 and 20 % for 2016 of the overall adverse loss (see Box 6 for an
illustration).

14
InthesimplifiedapproachtherepresentationoflossisbasedonbanksNTIvolatilitycharacteristics(averageand
standarddeviations).Allcalculationareinabsoluteterms,regardlessofactualincurredlosses.
38
Box6:Formaliseddescriptionsimplifiedmarketriskstressapproach
Theoveralllossisgivenby:
Lossbaseline=1xSD(NTI20112013)
Lossadverse=2xSD(NTI20092013)
Where:
Average(NTI)20112013isthesimpleaverageNTIover20112013;
SD(NTI)isthestandarddeviationofnettrading over20112013(baseline)or2009
2013(adverse)
YearlyNTIisthengivenby
NTI2014(baseline,adverse)=Average(NTI)20112013 0.5xLoss(baseline,adverse)
(1)
(2)
(3)
(4)
(5)
Where:
NTIyear(baseline,adverse)isthenettradingincomeperyearofexerciseandscenario;
Loss(baseline,adverse)istheoveralllossasgivenbyequations(1)and(2)perscenario
109. Thecalculationshallbeconductedinabsoluteterms,i.e.incurrencyunits,andnotinterms
ofanyNTIratio.
110. By definition, under both scenarios the change in NTI cannot be larger than zero. This
implies that banks cannot have a larger NTI after stress than at the starting point (3 year
averageNTI).Moreover,thebaselineNTIchangerepresentsafloorforchangeintheadverse
level.BankshavetoreporttheirendofyearNTI20092013accordingly.
3.2.3
ComprehensivemarketriskapproachforVaRbanks
111. Forthecomputationofthestresstestimpactfrommarketriskshocks,theassumptionwill
bethatinstantaneousshocksareappliedtopositionsheldfortrading,availableforsaleandat
fairvaluethroughprofitandloss(regardlessofdesignatedatfairvaluethroughprofitorloss
(fairvalueoption)orheldfortrading)includinghedgeaccountingandsovereignpositionsin
theseaccountingcategoriesasofthereferencedate15.Consistentwiththeconstantbalance
sheet assumption and the application of an instantaneous shock, portfolio management
actions in response to the stress scenarios, e.g. hedging or portfolio liquidation, are not
permitted.
112. Banksmusttranslatethemacroeconomicscenariosprovidedintoastresstestimpactvia
gainsandlossesforpositionsvaluedatfairvalue(includingpositionsheldfortrading,available
forsaleandatfairvaluethroughprofitandloss(regardlessofdesignatedatfairvaluethrough
profitandloss(fairvalueoption)orheldfortrading).Allofthesepositionsshouldbevalued
using the internal pricing and risk management models which are employed for these
purposes in the ordinary course of business of the bank. This is regardless of whether the
effectisviaNTI,othercomprehensiveincomeorP&L.

15
ApplicationtoallfairvaluepositionsregardlessoftreatmentunderVaR.
39
113. Although calculated as the loss resulting from instantaneous shocks to market risk
parameters,theimpactofthescenariowillbedistributedoverthethreeyearsoftheexercise
(2014,2015and2016),where50%oflossisallocatedto2014,30%to2015and20%to2016,
respectively.FairvaluechangesinheldfortradingpositionsshallaffectbanksNTI.Fairvalue
changes in available for sale and designated at fair value through profit and loss (FVO)
positions will be shown in accordance with their accounting treatment either in other
comprehensive income (available for sale) or in the P&L (fair value option). In case of an
impairmentestimateforpositionsasaresultofthestresstestscenariosthisistobebookedin
theP&L.
114. Forthetreatmentofgainsfollowingadeteriorationofowncreditworthinessseeparagraph
118.
3.2.4
115. Section3.2.4hastobeappliedbyallbanks.Bankssubjecttothesimplifiedapproachapply
thissectioninordertorevaluetheirAfSandFVOpositionsonly(andbacktobackpositionsin
HfT if deemed necessary); banks subject to the comprehensive approach are asked to apply
thesegeneralrequirementstoallfairvaluepositions(AfS,FVOandHfTpositions).Banksunder
the comprehensive market risk approach need to apply in addition specific requirements as
statedinsections3.2.5,3.2.7and3.2.8.
116. Banks are requested to conduct full revaluations of their positions for each of the two
macroeconomic scenarios and each of the four historical scenarios (details concerning
scenarios are given in section 3.2.6). For the baseline case the overall impact will be
representedbythesimpleaverageoftheimpactofthebaselineandfourhistoricscenarios.In
the adverse case, the impact will be determined by the simple average of the two worst
projectionsoutoftheadverseandfourhistoricscenarios.
117. Banksarerequestedtoapplythelistofmarketriskparameterstoallassetsandliabilities
sensitive to market risk in order to assess the scenario impact on unadjusted market prices
(Level1),otherobservableinputs(Level2),andsignificantunobservableinputs(Level3).The
model uncertainty reserves related to the Level 3 assets should appropriately increase
under the adverse scenarios. NCAs can require banks to present the projected increase in
thesereserves.
118. Forthepurposeofthestresstest,thebanksshallnottakeintoaccountpossiblevaluation
adjustments on debt securities and gains resulting from credit spread widening of own
liabilitiesunderanycircumstances.Hence,followingadeteriorationofowncreditworthiness,
the bank is not allowed to book a gain on those debt securities (or any other fair valued
liability)thatrepresentanetliabilitytothebank.
119. Unlessdifferentlyrequestedinthemethodology,bankswillusethemarketriskfactorsfor
revaluating their assets in respect of IFRS rules and according to the pricing techniques and
internalmodelsinuse.
40
120. Banksshouldmakeuse,asnecessary,ofahighergranularityofmarketriskfactorsintheir
riskmanagement.Tothisend,riskfactorsprovidedinthescenarioshouldbemappedtothe
additionalriskfactorsusedintheinternalsystemsiftheycannotbeobservedfortheperiod
referencedbythescenarioinquestion(plainly,thisappliestothemacroeconomicscenarios).
Banks should provide transparent documentation to the CA on the mapping applied, for
instanceintheformofmappingtables(seealsoparagraph130andBox7).
121. InthecomputationoftheoveralleffectonNTI,othercomprehensiveincomeorP&L,the
netgainsresultingfromchangeswithininamajorriskfactor(e.g.riskfactorcategoryinterest
rates) should be reduced by 30% while net losses should be accounted for in full, thus
reflectingthegeneralpriorthatriskdiversificationeffectsinportfoliosbecomelesseffectivein
astressedmarketenvironmentwhichmightnotbefullycapturedinthescenario.
3.2.5
Specificrequirementsforpositionsheldfortrading
122. Thestresstestimpactforpositionsheldfortrading(includingsovereignpositions)shallbe
showninthecomprehensivemarketrisktemplate.
123. Toallowacomparison,assessmentandmonitoringofthemagnitudeofchangesinmarket
riskpositionsduetothestressedriskfactors,banksarerequiredtoreporttheirlongandshort
positions and sensitivities. These need to be allocated to the relevant risk factors and
therefore do not necessarily sum up to all trading exposures (when two or more risk
factorsarerelevantforanasset/liability).However,banksmustdisplaythepositionsinthese
risk factor categories such that the whole trading activity can be inferred from this
representation and therefore monitored against banks individual (national) risk reporting,
annualreportsandvaluationchangesexperiencedinthepast.Thecompetentauthoritieswill
adopt rigorous approaches to control for the completeness of positions as well as the
plausibilityofvaluationchanges.
124. Toallowanassessmentoftheunderlyingdiversificationassumptions,banksmustpresent
the impact of each risk factor for the trading exposure and report it in the template. More
precisely, banks are required to assess the P&L sensitivity to changes in each risk factor,
independentofalloftheothermarketriskfactors,anddisplaytheresultsinthetemplate.
125. Gainsandlossesforheldfortradingpositionswillbecomputedbythecomparisonofthe
assetsandliabilitiesatfairvaluebeforeandaftertheapplicationofalltheshocks.Banksshall
provide a detailed breakdown of P&L effects by risk factor (per line in template 13) in the
appropriate section of the template. In addition, banks should report standalone VaR
contributions per major risk factor category (interest rates, foreign exchange etc., see
template 13) before the stress impact and the marginal VaR impact per major risk factor
categoryaftertheimpactoftheworstofallsixscenarios.
126. When reporting results for the held for trading positions, multivariate effects as well as
scenario correlation assumptions deriving from the application of the market risk parameter
shocksshall betakenintoaccountandcumulativelyshowninthetemplate,separatelyfrom
41
theonefactorP&Leffects.Thetotallosses/profitsonthetradingportfolioderivedfromthe
application of the shocks, for each of the two macroeconomic scenarios and four historical
scenarios,willbethesumoflinearandnonlinearlosses/profitsderivedfromtheapplication
ofthemarketriskparametershocksonalltheassetsallocatedinthetradingportfolio.
3.2.6
Descriptionofmarketriskscenario
127. The stressed market risk parameters have been estimated for the baseline and adverse
scenario by the ESRB/ECB. In addition, banks are provided with four historical scenarios, i.e.
based on past events which took place between the late 1980s until the sovereign crisis
startingin2010.Scenarioshavebeendefinedintermsofshockstomarketriskfactors.
128. Theexerciseemploysadetailedandgranularsetofmarketriskfactors(seecomprehensive
marketrisktemplate)inordertoprojectgainsandlossesonfairvaluepositions.Themarket
riskparametersincludeinterestratesandvolatilitiesformajorcurrencies,exchangeratesand
volatilitiesfortheaforementionedcurrencypairs,haircutsandchangesinvolatilityformajor
equity commodity and debt instrument indices as well as credit valuation adjustments,
changesincreditspreadsfordebtinstruments,parametersrelevantforthecorrelationtrading
portfoliosandbid/askspreadstobeusedfortheassessmentoftheimpactonmarketliquidity.
In addition, the set contains risk factors capturing basis risk and the specific risks of the
correlationtradingportfolios.
129. As scenarios may not necessarily capture banks structural market risk, CAs can require
bankstoreportasaseparateitemanymaterialriskfactorsthathavenotbeenspecifiedinthe
scenario.Theseriskfactorsshouldbeincludedinthestresstestusingshocksthatarederived
fromthemacroscenario.
130. Where a material part of a banks net trading income is generated under any of the
scenarios by risk factors other than those specified in the scenario, banks are required to
identify these risk factors and specify corresponding moves per risk factor for each of the
stress test scenarios. Specifically, banks need to account for 95% of the total P&L generated
undereachscenariointermsoftheriskfactorsspecifiedtogetherwiththeotherriskfactors
that provide the biggest contributions to P&L (whether profit or loss). The treatment of
additional risk factors and optional additional information to be required by CAs is also
specifiedinBox7.
42
Box7:Treatmentofadditionalriskfactors
Treatmentofadditionalriskfactors
Perhistoricalscenario
Where good quality data from the period referenced by the particular historical
scenarioisavailable,thisshouldbeusedtocalibratetheshiftintheriskfactorandthe
correspondingevidenceprovided.Forexample,ifabankhasmaterialexposuretothe
FTSEindexandisstresstestingforthe2001Recessionscenario,thentheshiftinthe
FTSE risk factor should reference the history of the FTSE index for the period August
2001 to September 2002. To be clear, where a bank has material exposure to a risk
factor and where the history of that risk factor is readily available, this approach is
expectedtobeapplied.
Where good quality data from the period referenced by the particular historical
scenarioisunavailable,thenoneofthefollowingapproachesshouldbeadopted:
If good quality data from a historical scenario that is similar to the particular
historicalscenarioisavailable,thisshouldbeusedtocalibratetheshiftintherisk
factor, and corresponding evidence should be provided, including reasons for
deemingthealternativehistoricalscenariotobesimilar.
If good quality data is available in sufficient quantity to support a statistical

relationship between the risk factor and one (or more) of the risk factors in the
scenarioprovided,thisrelationshipshouldbeusedtocalibratetheriskfactor,and
the statistical evidence to support this relationship should be provided (including
evidence to indicate how this relationship holds up in stressed market
conditions).Forexample,ifabankhasamaterialexposuretoSiemensAG,itcould
estimatethebetaforSiemensAGandcalibratetheshiftinSiemensAGasitsbeta
times the shift in the EuroStoxx50 index. In the specific case where a bank uses
oneoftheriskfactorsinthescenarioprovidedasaproxyforanotherriskfactor(so
that its relative shift is identical to that of the risk factor provided), evidence to
support the use of such a proxy variable is required. For example, if a bank
assumes that Siemens A G beta with the EuroStoxx50 index is 1 (so that the
EuroStoxx50indexisaproxyforSiemensAG)thenevidencetosupportassigninga
valueof1toSiemensAGbetaisrequired.
Where good quality data is unavailable (for example, for a newly issued corporate
bond) (so that the variable itself is unobservable and its relationship with other
variables cannot be statistically determined), theoretical reasons to support the
calibration of the risk factor shift should be provided. For example, there may be
arbitragereasonstosupportthecalibration.
The value of certain illiquid and / or complex trading book positions depends upon
43
unobservable/difficulttoobserveparameters.Suchparameters(or,indeed,valuation
methods) should be adjusted to reflect the severity of the market shock associated
with the scenario. For example, if the severity of the market shock might lead to
circumstances that would require a remark of the equity correlation book,
correlations, illiquid parameters, associated basis factors and the valuation
methodologyshouldbeadjustedaccordingly.
Permacroeconomicscenario
Becauseeachmacroeconomicscenarioishypothetical,historicaldataspecifictothe
scenarioareunavailable.
Wheregoodqualitydataisavailable,thenoneofthefollowingapproachesshouldbe
adopted:
If good quality data from a historical scenario that is similar to the particular
macroeconomicscenarioisavailable,thisshouldbeusedtocalibratetheshiftin
the risk factor, and the corresponding evidence should be provided, including
reasonsfordeemingthealternativehistoricalscenariotobesimilar.
If good quality data is available in sufficient quantity to support a statistical

relationshipbetweentheriskfactorandone(ormore)oftheriskfactorsprovided
in the scenario, the treatment should be the same as in the case for historical
scenarios.
Where good quality data is unavailable, the treatment should be the same as in the
caseforhistoricalscenarios.
The value of certain illiquid & complex trading book positions depends upon
unobservable / difficult to observe parameters. Here the treatment should be the
sameasinthecaseforhistoricalscenarios.
3.2.7
AdditionalrequirementsforcreditcounterpartyriskandDVA
131. Therequirementsinsection3.2.7applytobankssubjecttothecomprehensiveapproach.
132. CounterpartycreditrisklossesarisingfromtheEBAstresstest(s)havetwocomponents:
marktomarketlossesarisingfromchangesinCVAsforcounterpartiesthatdonotdefault;
lossesuponthedefaultofacounterparty/counterparties.Thefollowingparagraphsexplain
howweexpectbankstocalculatethesetwocomponentsofloss.
44
133. Inordertocalculateexpectedcreditvalueadjustments(CVA)lossesinthetradingbookthe
banks shall apply haircuts provided in the scenario to the marktomarket values (after the
applicationofthemarketriskshocks)ofOTCderivatives.Incaseanettingagreementexists,
thebankmaytakethenetvalueofthederivativesunderthenettingagreement(nettingset).
Ifthereisnonettingagreement,thebankshouldapplytheCVAhaircutstothegrossmarkto
marketvalueofthederivativesthathaveapositivereplacementvalue.
134. TheCVAstresswouldnotapplytoderivativescoveredbycollateralsupportannexes(CSAs)
andtoderivativesthatareclearedthroughcentralcounterparties(CCPs).
135. Banks have to display the fair value of the derivative positions / netting sets before and
after i) the application of collateral, ii) market risk shocks to the replacement value (both
displayedintemplate14)andiii)theCVAhaircut,withabreakdownbyrating16(template13).
Banks are requested to display the present value of the derivative positions / netting set
clearedthroughCCPsaswellasthoseunder(twoway)CSAs(template14).
136. For the purposes of the stress test, the banks shall not take into account possible debt
valuation adjustments (DVA). Hence, following a deterioration of own creditworthiness, the
bank is not allowed to book a P&L profit on those OTC derivatives (or any other fair valued
liability)thatpresentanetliabilitytothebank.
137. Banks are not allowed to offset the projected CVA fair value impact by any existing
reserves.
138. In addition to the P&L associated with changes in CVAs, counterparty credit losses may
ariseifcounterpartiesactuallydefaultinthestressscenarios.Togaugethepossibleimpactof
thissourceofP&L,competentauthoritiescanrequirebankstocalculateandreportexposure
atdefault(EAD)fortheirlargest10counterparties(asmeasuredaftertheapplicationofthe
scenarios).Inthatrespectbanksshouldreportboththemeasureat31/12/13andpostimpact
of stresses to market risk factors, as well as the gross and net exposure (net of credit risk
mitigation).
139. For CVA and EAD in the trading book, banks are required to assume that the largest
counterparty (for the credit exposures) would default and report the impact (both pre and
postimpactofstressestomarketriskfactors),aswellasthegrossandnetexposure(netof
credit risk mitigation) to that counterparty. To identify the largest counterparty,
counterparties should be ranked by EAD after netting (if contractually permitted) and after
applyingthemarketriskstress.Banksshouldassumeazerorecoveryrateforlossesrelatedto
theunsecuredpartoftheexposure.Forthesecuredpartofanexposureparametersapplied
for the calculation of regulatory capital should be used. The reported loss should reflect the
deteriorationofthecreditriskmitigationprotectionresultingfromthemarketriskscenarios.
The overall counterparty credit risk loss will be calculated as the largest EAD times the

16
Asperexternalratingscaleoraccordinginternalratingsandperclient.
45
appropriate LGD plus the aggregate CVA P&L. This loss should be added to the total losses
resulting from the market risk scenario. CCPs, other market infrastructures, central
governmentsandcentralbanksshouldnotbeincludedinthesetofcounterpartiesandnames
toidentifythelargestexposure.
3.2.8
Othertradedriskrequirements
140. Therequirementsinsection3.2.7applytobankssubjecttothecomprehensiveapproach.
141. VaRbanksshallcomputethemarketliquidityshockduetoanexogenouswideninginthe
bidaskspreadbytakingintoaccounttheimpactcausedonthemarketliquidityreserve
(valuationadjustment)assetoutintheeducationalguidanceontheapplicationoffairvalue
measurementwhenmarketsbecomeinactivebytheIASBinOctober200817.
142. Banksholdingacorrelationtradingportfolioinexcessof1%oftotalriskweightedassets
aredeemedtoholdasignificantcorrelationtradingportfolio.Thesebanksshallcomputeand
reporttheimpactoftheshockonthecorrelationtradingportfolioseparately.Otherbanks
maydosoattheirdiscretion.
3.2.9
RWAcalculationformarketriskandcounterpartycreditrisk
143. For the purpose of this exercise, regulatory requirements for banks that can choose the
simplified marketriskapproachorthathavenoVaRmodelin place(seeparagraph106)are
assumed to remain constant at the level end of 2013 for both the baseline and adverse
scenario.
144. RWA for securitisation positions are expected to change in accordance with the
securitisationmethodology(seesection3.3)regardlessofthemarketriskapproachapplied.
145. MarketriskRWAsforbankssubjecttothecomprehensiveapproacharedefinedascapital
chargesresultingfromValueatRiskmodels(VaR)andthestressVaR(SVaR),incrementalrisk
charge (IRC), comprehensive risk measure (CRM) and own funds requirements for credit
valuationadjustments(CVA).
146. Thestartingvaluesaretherespectivecapitalchargesreportedasofend2013.
147. The market risk RWA are recalculated as described in paragraphs 148ff. for each year of
thestresstesthorizon.
148. VaR and SVaR are assumed to remain constant at the level of capital charge end2013
under the baseline scenario. Under the adverse scenario the VaR capital charge will be
replaced by the SVaR capital charge as of end2013. In case of partial use, the adverse VaR
capital charge (2xSVaR) is added to the scaled capital requirements under standardised

17
http://www.ifrs.org/News/Press+Releases/IASB+publishes+educational+guidance+on+the+application+of+fair+value
+measurement+when+markets+become.htm
46
approaches. The scaling factor is derived from the ratio of 2xSVaR over the sum of VaR and
SVaR(allasofend2013).
149. Banksmodellingincrementalriskcharge(IRC)onexternalratingsmustestimatethestress
impactofthescenariosinaccordancewithparagraph91ofthismethodology.Banksmodelling
IRC on the migration of internal ratings must estimate the stress impact in accordance with
paragraph92ofthismethodology.Overall,theincreaseintheincrementalriskchargeforthe
baseline and adverse scenario should be aligned with the average increase18of RWA in STA
andIRBportfoliosinthebaselineandadversescenario,respectively.
150. Forcorrelationtradingportfolio,thecomprehensiveriskmeasurewillbeassumedconstant
inthebaselinescenario.Intheadversescenariothefollowingscalingisassumedtoderivethe
stressedCRMcapitalcharge:
i. 8%floorisnotbinding:1.5timestheCRMcapitalcharge;
ii. 8%floorisbinding:2timesthefloor.
151. The capital chargesforcorrelationtradingpositions under thestandardisedapproachare
assumedtoremainconstantatthelevelofend2013underbaselineandadversescenarios.
152. Banks that are subject to a credit risk capital charge for CVA are required to calculate a
stressedregulatorycapitalCVAchargeunderthebaselineandadversescenario.Todetermine
additionalCVAcapitalneeds,banksarerequestedtorecalculatetheCVAchargeunderstress
conditionsandbasedontheirregulatoryapproachinuse.Tothisend,banksshouldtranslate
the macroeconomic scenarios into underlying risk parameters and determine respective
stressedcapitalcharges.Overall,theincreaseintheCVAchargeforthebaselineandadverse
scenarioshouldbealignedwiththeaverageincrease19ofRWAinSTAandIRBportfoliosinthe
baselineandadversescenario,respectively.
153. RWAsforthecounterpartycreditriskcapitalrequirementandownfundsrequirementsare
calculatedusingtheapproachoutlinedinsection3.1.8(forCreditRWAs),butwithexposures
calculatedassetoutinparagraph100ofthissection.
154. For banks using internal models to derive regulatory capital requirements for the trading
book, the end of 2013 level of capital charges serve in general as a floor for the capital
requirements.
155. Theonlyexemptionisduetothe likelycompletionofmandatoryrestructuringplansthat
havebeenpubliclyannouncedonor before31/12/1320.Any capitalchargereductiondueto
restructuringhastobeapprovedbythenationalsupervisorandissubjecttocrosschecksat
theEuropeanlevel.

18
Inrelativeterms.
19
Inrelativeterms.
20
TheserestructuringplansneedtobeformallyagreedwiththeEUcommission(DGComp).
47
3.3 Treatmentofsecuritisations
3.3.1
Scope
156. AllexposuressubjecttoCRRChapter5(traditionalandsynthetic,resecuritisations,aswell
asliquiditylinesonsecuritisationtransactions)areincludedinthescopeoftheexercise.
157. Aspecificapproachisappliedintheexerciseonthesecuritisationexposuresinthebanking
bookandtradingbook.Inaddition,securitisationexposuresunderfairvalue(regardlessofthe
attributiontobankingortradingbook)aresubjecttoamarktomarkettreatmentunderthe
market risk approach. Securitisation exposures held in the banking book are subject to
estimatedimpairmentsunderthecreditriskapproachinlinewiththerelevanttreatmentfor
theunderlyingexposures.Estimatedimpairmentsshouldtakeintoconsiderationtheimpactof
creditenhancementandotherstructuralfeatureswhenapplyingthecreditrisk.
158. All exposures (traditional and synthetic, resecuritisations, as well as liquidity lines on
securitisationtransactions)forwhichtherearesignificantrisktransfers(asinthemeaningof
the CRR/CRD IV) are included in the scope of the exercise. Securitised exposures within
correlation trading portfolios are covered by the market risk methodology and must be
reported within the market risk template. Originator positions where no significant risk
transferhasbeentakenplacearetobetreatedunderthecreditriskmethodologyandshould
be reported accordingly in the credit risk templates. In particular, this holds for exposure to
securitisationsissuedorguaranteedbyinternationalorganisations,multilateraldevelopment
banks, governments, or government agencies, where firms are subject to the credit risk of
theseinstitutionsratherthanthecreditriskoftheunderlyingexposures.
159. Forallexposures,banksarerequiredtouseastaticbalancesheetassumption.Thestatic
balance sheet assumption should be applied by keeping the outstanding balance of all
securitisationexposuresunchangedthroughoutthetimehorizonofthestresstest.
3.3.2
160. Forsecuritisationexposurenotheldfortrading,banksarerequiredtoestimatetheamount
ofimpairmentsattheendofeachperiodoverthehorizonofthestresstestexercise,taking
intoaccountthefeaturesofthebaselineandadversemacroeconomicscenarios.Banksshould
estimate the amount of impairments before the risk weighted assets calculation for
securitisation positions. The forecasted impairments should take into consideration
impairmentsalreadytakeninpriorperiodsandincrementalimpairmentsforeachperiodmust
be added in the securitisation template. For each individual security, the underlying pools
credit and prepayment models must be stressed under the different scenarios to produce
consistentimpairmentestimates.
161. For securitisation exposures subject to marktomarket valuation, banks are required to
estimate the marktomarket loss incurred in each year of the scenarios according to the
market risk methodology and report the forecasted losses in the securitisation template as
48
impairments. Banks should estimate fair value changes before the risk weighted assets
calculationforsecuritisationpositions.
162. The forecast P&L charges will be reviewed and challenged and could be revised by
competentauthorities.
3.3.3
Riskweightedassetscalculationforsecuritisations
163. The stress is applied to the securitisation positions (Standard and IRB portfolios) in the
different credit quality steps as of end December 2013 by substitution of the original risk
weightsbypredefinedincreasedones.TheincreasedriskweightsreflecttheeffectonRWA
duetothepotentialratingmigrationofthepositions.
164. Forthispurpose,thesecuritisationpositionshavebeenallocatedtothreedifferentclasses
ofsecuritisations,low,mediumandhighriskassets.Thedifferentiationisbasedonthecredit
quality of the position, the structure or asset class of the transaction and regional
differentiation.Theclassificationisbasedonananalysisofthehistoricalmigrationvolatilityof
differentproductsandtheirorigin,whereahighermigrationprobabilityindicateshigherrisk.
Inparticular:
Riskbucket1(lowrisk):ABCP,EMEARMBS,NorthAmericaABS,EMEAABS;
Riskbucket2(mediumrisk):EMEACMBS,EMEACDO(structuredcredit);
Riskbucket3(highrisk):NorthAmericaRMBS,NorthAmericaCDO(structuredcredit),North
AmericaCMBS,allotherpositionsincludingresecuritisations.
165. When external ratings are not available and the banks use the Supervisory Formula
Approach (SFA) or Internal Assessment Approach (IAA) for RWAcalculation purposes, the
banksshallapplythestressfactorsforunsecuritisedcorporateorretailexposurestotherisk
components (PD, LGD) of the asset pool in the respective exposure class. In this case, as a
precondition,theIRBbankswillhavetodemonstratetotherespectiveCAsthattheinternal
methodscanbeadjustedinawaythatisconsistentwiththescenarios.
166. BanksmightbeaskedtosupplyinformationontheIRBandSTAexposureinriskbucketsas
defined above. For this purpose the securitisations should be reported in the securitisation
templatesbycreditqualitystep,securitisationvs.resecuritisation,RWAcalculationapproach,
seniority and granularity based on corresponding CRR definitions (e.g. CRR paragraphs 251,
259,261,262).
49
3.4 Costoffundingandinterestincome
3.4.1
Overview
167. Projectionsconditionalonthebaselineandadversescenario,respectively,fortheprices21
oftheinterestearningandinterestpayingportfolios22overthehorizonofthestresstestwill
have to be provided. Moreover, a distinction shall be made between existing positions and
new positions (i.e. the positions that will replace the maturing positions) in terms of the
effective interest rates earned (or paid) for each of these two components. The projected
interestrateswillreflectrepricingeffectsfornewbusinessandchangesinthereferencerates
for the floating rate items. Interest income from assets in the Trading Book and from
derivativesandhedgingpositionswillhavetobeincluded.
168. Regarding the interest income from assets held for trading, available for sale, and
designated at fair value through P&L: The forecast must be consistent with the volume and
characteristic(typologies,yields)oftheinvestedassetsattheendof2013andchangesinthe
macroeconomic scenario (interest income on assets held for trading should not be shown
under the comprehensive market risk approach/NTI). Banks which in the course of their
periodicfinancialreportingpresenttheincomeontheseassetsasapartofnettradingincome,
mustensurethatthisincomeisnotcountedtwiceintheexercise.Thesebanksshouldreport
thisincomeasapartofnetinterestincome,andremoveitfromtherecurringNTIprojectedin
linewiththeprovisionsofSection3.2ofthisnote.
169. Definitionoftheeffectiveinterestrate:Effectiveinterestratemeans,inthiscontext,the
ratewhichifmultipliedbythecorrespondingvolumeofanitemwillbeequaltotheinterest
income contribution of this item during a specific time interval.23Specific assumptions with
respecttothegranularityofthematurityprofileandthetimingforissuingnewcontractswill
havetobemade.Therelevantdefinitionsandassumptionsforfillingthedatatemplateswill
bepresentedbelow.
170. The projections of prices should be sufficient to calculate net interest income, given the
static balance sheet assumption, since they would cover all interestearning and interest
payingportfolios24includingderivativesandhedgingpositions.
171. Bankswillusetheirownmethodologytoprojectthefundingcostsandthepassthroughof
thechangeinthecostoffundingtothelendingrates.Inparticular,banksneedtoassumean
asymmetrical pass through of interest rate changes on the asset and liability side respecting
the caps and floors specified in paragraphs 172 and 173. Banks approaches and projections

21
Pricesmeansherethereturnsoftheseitems.
Thesizeofportfolioswillremainstableoverthehorizonduetothestaticbalancesheetassumption,butinterest
earnedorpaidcouldchangeaccordingtothescenarioandtherelatedbanksprojections.
23
Theeffectiveinterestrateonloansandreceivablesshouldfactorinthat,underIFRS,feesandcommissionslinkedto
theloanarepartofinterestincomei.e.thesearestressedaspartofNII.
24
Giventhestaticbalancesheetassumption,theevolutionofaggregateinterestincomeonloansandreceivablesshould
reflectthereductioninperformingloansasaresultofdefaultedassets(nosubstitutionassumption).
22
50
will be subject to a thorough quality assurance analysis, including a comparison against

relevant benchmarks. This could lead to requests for revisions to banks projections in the
context of quality assurance process. As part of the quality assurance process there may be
exceptional cases of legally prescribed funding matches which would need to be taken into
accountinthestresstestwhenconsideringthepassthroughassumption.
172. To ensure consistency with the scenario, banks are required at a minimum to reflect the
changes in their domestic sovereign bond spreads in the funding costs. Wholesale funding
costs should be adjusted by at least 100% of the change in sovereign bond spreads at the
appropriate maturity (e.g. 5 year wholesale funding should reflect the change in 5 year
sovereign bonds). For other (new) liabilities, at least a portion of this increase should be
includedataminimum,30%oftheincreaseinsovereignbondspreads(againreflectingthe
relevantmaturity)shouldbepassedthroughtohouseholddepositsrates,andatleast50%for
corporate deposits.25Banks should reflect their own assessment of the elasticity of their
differentdepositbooksandmaychoosetoshowgreatersensitivity.
173. Ontheassetside,banksshouldconsidertheextenttowhichitwouldbepossibletopasson
increasedfundingcoststocustomersinastressedenvironment.Asamaximum,banksshould
notassumeanabilitytopassthroughmorethan75%oftheincreaseinfundingcoststonew
lending;exceptforresidentialmortgageswherebanksshouldinsteadapplyacapof50%on
thepassthroughratefromthefundingcosttonewlending.Aswiththeliabilityassumptions,
banksshouldreflectthematurityoftheassetwhendeterminingwhichwholesalefundingcost
shouldbeappliedforthepurposesofthecap.
174. Banks may choose to make more conservative assumptions to either side of the balance
sheet should they view this as more realistic given the scenario, and should differentiate
across products in such a way as reflects known differences in the characteristics of those
products.
3.4.2
Projectionoflendingandfundingrates
175. Bankswillhavetousetheirownmethodologyinprojectinglendingandfundingratepaths,
thereforeallowingfortheindividualbanksperspectiveoffundingsensitivityandpassthrough
potential to lending rates conditional on the macroeconomic scenario. The difference in the
pricesensitivitiesofdifferentfundingsourcesshouldbefactoredin.Itisrecommended that
the price projections incorporate both exogenous factors and idiosyncratic features of the
bank. Specifically, at least the effects of the following factors are expected to be taken into
account:
Macroeconomicenvironment(GDP,unemployment,houseprices,etc.);
Evolutionofreferencerates(e.g.swapratecurve);
25
Anylegallymandatedrestrictionstopassthroughmechanismsshouldbeidentifiedanddiscussedduringthequality
assuranceprocesswhichmay,inexceptionalcircumstances,leadtodeviationsfromthisrule.
51
Marketstructure(marketpowerpotentialtomarkupovermarginalcost);
Creditriskanditseffectonsettingtheinterestrate;
Supplyconstraints(capitalposition,liquidityposition).
176. Itisexpectedthatincreasedcostoffundingwouldfeatureundertheadversescenario.Two
elements contribute to increasing banks funding costs under the adverse scenario and
decreasingtheprojectednetinterestmarginthroughoutthestresstesthorizon:
Increase in wholesale funding costs the cost of expiring wholesale funding increases
reflectingadversemacroeconomicdevelopments,riskaversionandliquiditystrains;
Increase in retail funding costs the cost of sight deposits and expiring term retail funding
increasesreflectingincreasedcompetitioninthemarketforretailfunds.
177. Specifically,asregardswholesalefundingcosts,wherebybanksaretoalargerdegreeinthe
position of price takers (rather than price setters), the evolution of credit spreads in
accordance with the macroeconomic scenario should be taken into account. Projections of
futureCDSspreads26andPDs,linkedtothemacroeconomicscenarioshouldbeusedasfactors
affectingthebankswholesalefundingcost.
178. For floating rate wholesale liabilities there will be two drivers of stress for the cost of
funding:i)thetimepathoftherelevantreferenceratesand;ii)thepremiumchargeddueto
e.g.creditandliquidityrisk.
179. Fortheevolutionofyieldcurvesoftheirfixedincomeportfolio,banksareexpectedtotake
into account the macroeconomic developments, projections about sovereigns
creditworthiness and spillover effects, e.g. from weak sovereigns to other distressed
economies.
180. ItisassumedthatLongTermRefinancingOperations(LTRO)canberolledoverintoMain
Refinancing Operations (MRO) funding upon maturity; however, without an increase in the
overall volume. While there is no explicit forecast of monetary policy in the stress test
scenarios,banksareexpectedtofactortheprojectedchangesinshorttermmarketratesinto
thecostsofcentralbankfunding.

26
WhereCDSspreadsarenotavailableornotrepresentativeduetoilliquidity,AssetSwap(ASW)spreadsforsenior
unsecuredbondsmaturingaroundthe5yearsmaturitycouldbeused.TheASWspreadisdefinedastheratethat
nullifiesthefairvalueofaninterestrateswap,wherebythefixedlegconsistsofthepaymentcashflowsofthe
benchmarkbond(againstwhichthecreditspreadiscalculated)andthefloatinglegisindexedtoafloatinginterestrate
(Xibor)definedforacertainmaturity,whenthebenchmarkbondisquotedatpar(orifitisnotquotedatpar,taking
intoaccountthedifferencebetweenthequotedcleanpriceand100).
52
3.4.3
Additionalrequirements
181. Assumptions underlying the scenarios cannot lead to an increase in net interest income
comparedwiththebeginningoftheexerciseunderthebaselineandadversescenario.
182. Underthebaselinescenario,banksarerequiredtoprojecttheinterestaccruedonNPLsin
line with their standing accounting practice (e.g. no recognition of unpaid income i.e. only
cash interest received is treated as income, or, full recognition of interest using the original
interest rate on the unimpaired balance). Under the adverse scenario, income on defaulted
assetsshouldnotberecognized.
183. Banksarerequestedtoprovideseparately,interestincomeandexpensesaccruingfromthe
useofderivatives,brokendownintoderivativeswherethebankispayingafixedinterestrate
and/orpayingafloatinginterestrateand/orreceivingafixedinterestrateand/orreceivinga
floatinginterestrate.Theratesandnotionalvolumesofderivativesusedinhedgeaccounting
aretobepresentedseparatelyofotherderivatives.Theeffectiveinterestratereportedshould
reconcile to the net interest income on derivatives in line with paragraph 160. For nonEU
countries,thebankswillhavetofillthetemplatesasforEUcountries,but,inaddition,acap
basedonappropriatebenchmarksontheprojectedNetInterestIncomewillbeimposed.
184. Interestincomefromassetsinthetradingportfolioforeachyearofthestresstesthorizon
isnotallowedtoexceedthetotalinterestincomefromassetsinthetradingportfolioin2013.
3.4.4
Definitions
185. Wholesale funds are defined as those provided by wholesale investors other than non
financial corporations. Wholesale funding is broken down into four main categories: i)
interbank unsecured transactions; ii) interbank secured transactions (including repos traded
withacentralcounterparty);iii)wholesaledebtissued,includingsubordinateddebtissuances
and covered bonds; iv) other wholesale transactions, including operations in Commercial
Paper and Certificate of Deposits. Banks are also requested to provide data on secured and
unsecuredlendingtootherfinancialinstitutions.
186. Thedatasetofthetemplatecapturestheresidualmaturitydistributionofinterestpaying
liabilities and interestearning assets. Figures have to be reported with regard to the
contractual maturities, however if banks own analysis indicates a material difference exists
between behavioural and contractual maturity (e.g. for residential mortgage maturities)
estimated behavioural maturities will have to be reported. Behavioural maturities are also
neededfortheitemswithouta contractual maturity. Givenastatic balance sheetapproach,
assets and liabilities that mature within the time horizon of the exercise should be replaced
with similar financial instruments in terms of type27, credit quality at date of maturity and

27
Heretypealsoreferstothefixedvs.floatingfeatureofthematuringitem.Regardingmaturingmortgageloans
whichhadinitiallyafixedrateperiod,itisexpectedthatthenewmortgageloanwhichreplacesthematuringonewill
alsohaveaninitialfixedrateperiod.Inordertorespecttheconstantbalancesheetassumptionwhichprohibitsa
53
average original maturity as at the start of the exercise. Therefore, the average original
maturity for each type of contract is requested. The interest rate for new business which
replacesthematuringoneswillreflectrepricingeffects.
187. Callable wholesale debt liabilities that are callable by the counterparty prior to their
overallmaturityareexpectedtobeexercisedonthefirstpossiblecalldate.28
188. When providing information on the remaining maturity distribution for assets and
liabilities,bankshavetoreportsightdepositsinthefirstmaturitybucketonly.
189. Banks are required to report information on fixed/floating rate composition. Banks are
required to report information split by existing positions and replaced positions that mature
during the stress period in line with the assumption of a static balance sheet. Floating rate
referstoaninterestratethatisadjustableoverthedurationofthedebtobligationand/or
that is allowed to move up and down with the rest of the market or along with an index or
referenceinterestrate.Foritemswheretheclassificationisnotstraightforward(e.g.floating
ratemortgageswithaninitialfixedrateperiodwhichmaturewithinthestresstesthorizonand
arereplacedwithnewonesofthesametype),themaincriterioniswhetherassumingthatthe
itemseffectiveinterestrateconformstothepreviousdefinitionisabetterapproximationto
realitycomparedtoassumingthatitremainsfixed.
190. Box 8 gives detailed definitions for the maturing and replacement of positions as well as
effectiveinterestratestobereported.
Box8:Detaileddefinitionsregardingtheevolutionofportfolioandinterestincome
Detaileddefinitionsregardingtheevolutionofportfolioandinterestincome
This section will present the basic assumptions as regards the evolution of the portfolio
and the resulting interest income. The discussion below is presented for assets but it
remainsvalidalsoforliabilities(ifincomeisreplacedbyexpenses).Thehorizonofthe
stresstestingexercisebeginsatt0andendsattN.Ayearlydatafrequencyisrequestedand,
therefore,eachtimeinterval[tn1,tn]representsoneyear.
Aspecifictypeofassets,i,isconsidered(thesamedefinitionsholdforliabilitiesaswell).
During the horizon of the stress test, the size of this portfolio will remain constant as
maturingassetswillbereplacedbynewpositionsofthesametype,althoughatapossibly
differentrate.Therefore,totalpositionsattn,denotedbyTn,canbewrittenas:
changeinthecompositionofthebanksportfolio(herewithrespecttothefloating/fixedcomposition)thebankwill
havetoclassifyboththeexistingandthenewloaninthesameportfolio(fixedorfloating)dependingonwhetherthe
concatenationintimeoftheexistingandthenewloanwillbethroughoutthestresstesthorizonmostlyafloating
rateorafixedratecontract.
28
Forexample,abondwithacontractualmaturityof3yearsandacalloptionthatcanbeexercisedbytheinvestor
after1yearhastobevaluedinthetemplatewitharesidualmaturityof1year.
54
Tn En N n
where En is existing positions (those that existed also at tn1, or, in other words, the
positionsfromtn1thatdidnotmatureduringyearn)andNnthenewpositions(i.e.those
thatwerereplacedduringtheyearn).29
Because of the static balance assumption, total volumes will remain constant, therefore
Tn=T0,foralln>0.
In implementing the static balance sheet assumption, both the asset structure and the
funding structure of the banks should not change over the time horizon of the exercise.
Maturing assets and liabilities are expected to be substituted with assets and liabilities
havingthesameaverageoriginalmaturityastheassetsandliabilitiesdue.Therefore,the
decomposition of total positions into new and existing positions will arise naturally from
thesubstitutionofmaturingitems(seetemplate).
Inaddition,itshouldbeclarifiedthatasregardstheloansandreceivablesportfolio,the
static balance assumption applies to the portfolio as a whole i.e. when adding the
performingandnonperformingpart.Itisexpectedthatunderstressthetotalvolumeof
performing assets will be decreasing and simultaneously, nonperforming assets will be
increasing.
Theeffectiveinterestrateisaffectedbythedistributionintime(withinthetimeinterval
[tn1,tn])ofmaturingandnewitems.30Thefollowingtimingassumptionsareused31:
An item from tn1 can have matured, at the soonest, at tn; i.e. there is no maturity
shorterthan1year.Equivalently,
whichmaturesin1year32.33
En 1 n Tn1
,wherenisthepercentageofTn1
AllnewpositionsNn,arecontractedatthemidpointbetweentn1andtn.
Theinterestincomeduringyearnconsistsofincomeearnedfromexisting positionsand
incomeearnedfromthenewpositions.Consequently,twoeffectiveinterestratescanbe
defined.Specifically:
Income earned on existing positions; i.e. income earned by Tn1. This component of

29
Inthecaseofdefaultedloans,Nnwouldofcourserepresentnewlydefaultedloans.
30
Forexample,ifthedistributionofmaturing/newitemsisskewedtowardstheendofthetimeinterval,thiswillresult
inalowereffectiveinterestrate(allotherthingsbeingequal).
31
Thefollowingtimingassumptionsareindicativeinordertoillustratehowthebankscouldcalculatetheeffective
interestrates.Itisrepeatedherethatbanksshouldreporttheeffectiveratessothatthemultiplicationofthevolumes
andtheeffectiverateswillequalthenetinterestincomecontributionofeachspecificitem.
32
33
I.e. n
Tn1 ; maturity 1 year / Tn1
Morespecifically,wehave:att=0: T0
E0 ;att=1: N1 T0 , E1 1 T0 , T1 E1 N 1 ;att=2:
N 2 T1 , E 2 1 T1 , T 2 E 2 N 2 etc.
55
incomecanbewrittenas NII ex, n Tn 1 1 n rex , n Tn 1 n rex , n / 2 whererex,n

istheeffectiveinterestrateforexistingbusiness34(asdefinedbythepreviousidentity
i.e.theratewhichifmultipliedbyTn1givestheinterestincomeearnedbythisportfolio
ofbusiness). NII ex ,n heredenotesthecontributionofthespecificitemtonetinterest
income,therefore,ifitisanassetitcorrespondstoincomewhileifitisaliabilityitem,
itcorrespondstoanexpense.
Incomeearnedbynewpositions,whichis NII new, n N n rnew, n / 2

i.e.rnew,nisthenominalinterestrateofthenewbusiness.Thenominalinterestrate
equalstwotimestheeffectiveinterestratefornewbusinesswhichequals new,n
(thisdefinitionwaschosensothatrnew,niscomparablewithrex,n)35,duetothe
assumptionofpositionsbeingreplacedatthemidpointbetweentn1andtn.
/2
Banks will need to report volumes and interest rates separately for the floating and the
fixedrateportfolios.Therefore,itisusefultorewritetheequationsfortotalbusinessand
NIIseparately,forthefloatingandfixedsegmentsoftheportfolio:
Tntype Entype N ntype

type
ntype Tntype
1 ; maturity 1 year / Tn 1
Entype 1 ntype Tntype

1
N ntype ntypeTntype
1
NII
type
i ,n
type
i ,n
type
ex ,i , n
type
i ,n
type
type
rnew
,i ,n rex ,n
where type float , fixed .

Therefore,theeffectiveinterestratefortheexistingbusinessattimenequalsthenominal
interestrate
type
ex ,i , n
type
type
rnew
,i , n rex , n
2
,whilefornewbusinessequals
i.e.itistheaverageofthe

34
Inthecaseofexistingbusiness,theeffectiveandthenominalinterestratecoincide.
These timing assumptions do not necessitate any specific tailoring of banks internal models to comply with the
requirements of the exercise. Banks will just have to provide the amounts of existing and new business for each time
period,asprojectedbytheirinternalmodels,andsubsequentlytheywillhavetocalculatethecorrespondingeffective
interest rates that together with the corresponding amounts would enable the calculation of the interest income of
existingandnewbusinessrespectively.Theonlyadditionalnuancewouldbethatinordertocalculatetheincomefrom
newbusinessitisrnew,n/2thatwillhavetobemultipliedbytheamountofnewbusiness,ratherthanrnew,n.Thisisjusta
convention,forthepurposeofmakingtheinterestratesrex,nandrnew,ncomparable.
35
56
ratesonexistingbusinessandtherateonnewbusiness(becauseofthetimingassumption
thatnewbusinessareconductedatthemidpointoftheinterval[tn1,tn]).
Consequently, in order to calculate the effective interest rates banks will first have to
calculate the volumes of new and existing business taking into account the constant
balancesheetassumptionandthematurityprofileoftheirassetsandliabilities.Then,the
banks will have to project the interest rates of their new business. Consequently, the
effectiveinterestrateforexistingbusinesswillbeequaltotheinterestratesoftheexisting
r type
business ( ex ,i ,n ) while the effective interest rate for new business will be equal to the
averagebetweentheinterestrateforexistingbusinessandtheinterestratechargedfor
type
type
rnew
,i , n rex , n
2
newbusiness(
).Thisprocedurewillgivetheeffectiveinterestrateswhichif
multiplied by the respective volumes of existing and new business will give the
contributionofeachitemintothenetinterestincome:
NII
type
i,n
type
i,n
type
ex , i , n
type
i,n
effective interestrate for

existing business
type
type
rnew
, i , n rex , n
effective interestrate for

new business
Therefore,thecontributiontoNIIfromitemi(obviously,ifitemiisanassetitwill
contributetointerestincomeandifitisaliabilitytointerestexpenses),duringyearn,
NII
i ,n
float
fixed
fixed
NII exfloat
, i , n NII new , i , n NII ex , i , n NII new , i , n
floating
portfolio
contributi on
fixed portfolio
contributi on
float
1
r
T
r float
r float n / 2
,n / 2 N i ,n
ex
new, i ,
equal T
float
n 1
float
n
float
ex , n
float
n 1
floating
float
n
portfolio
contributi on
T
1
r
T
fixed r fixed
/ 2 N i ,fixed
r fixed, i , n / 2
,n
n
n ex
new

fixed
n 1
fixed
n
fixed
ex , n
fixed
n 1
fixed portfolio
contributi on
andtotalNIIisthesumofallthesecomponents
NII n NII i , n
i
3.5 Sovereignrisk
3.5.1
Overview
191. Sovereignriskpositionswillbetreatedinaccordancewiththemethodologyofrespective
risktypes,i.e.:
Sovereign positions in the regulatory banking book: banks are requested to estimate
impairments/losses for sovereign exposures excl. fair value positions subject to market risk
approach (AfS and designated at fair value through profit and loss) in line with sovereign
57
downgrades,consistentwiththeadversemacroeconomicscenarioprovidedbyESRB/ECB.In
addition, banks are requested to compute (stressed) regulatory RWA accordingly and
according to the applicable prudential framework. For both calculations, the impact of the
economic scenario on default and loss parameters for sovereign assets will be assessed
through stressed default and loss parameters for corporate portfolios under specific
assumptionsondownwardsratingsnotchingtobeprovidedbytheECB/ESRB.
Sovereign positions in AfS and designated at fair value through profit and loss (FVO):
sovereign exposures in these categories subject to the market risk parameters (markto
market) and haircuts as provided by the ESRB/ECB for EU countries. Haircuts are applied to
directexposuresonly(seeparagraph193)36.Otherexposuresshouldbestressedbasedonthe
market risk methodology. The application of provided market risk parameter holds for all
banksinthesampleindependentlyofsection3.2.2.Theuseofprudentialfiltersforsovereign
exposuresheldinavailableforsaleportfoliosistreatedaccordingtoparagraph33.
SovereignpositionsinHfT:sovereignexposuresinthiscategoryaresubjecttothemarketrisk
parameters (marktomarket) and haircuts as provided by the ESRB/ECB and RWA stress as
describedinsection3.2.9andarereportedinthecorrespondingmarketrisktemplates.Losses
onsovereignpositionsinHfTareincludedasmemorandumitemsonthesovereigntemplate.
192. Seealsosection1.11Overviewonstresstestingmethodologyaccordingtorisktype.
3.5.2
Definitions
193. Banks are required to report their sovereign exposure by country and residual maturity.
Exposuresarereportedgrossofhedging.Thehedgingeffectisreportedseparately.Additional
totherelevantaccountingtreatment,thefollowingdefinitionsapply(seetemplate):
Direct positions: Exposures to be reported include the positions towards sovereign

counterparts. The exposures to be reported arise from immediate borrower basis (e.g. an
exposureof100towardsCountryA,collateralisedwithbondsissuedbyCountryB,isreported
onCountryAbutnotonCountryB)anddonotincludeexposurestoothercounterpartswith
fullorpartialgovernmentguarantees.
Indirectpositions:Exposurestobereportedincludethepositionstowardsothercounterparts
(other than sovereign) with sovereign credit risk (i.e. CDS, financial guarantees) in all
accounting portfolios (onoff balance sheet). Irrespective of the denomination and/or
accounting classification of the positions. The economic substance over the form must be
usedascriteriafortheidentificationoftheexposurestobeincludedinthiscolumn.Thisitem
does not include exposures to counterparts (other than sovereign) with full or partial
governmentguaranteesbycentral,regionalandlocalgovernments).
36
ThestressfornonEUcountriesexposuresshouldbeestimatedbasedonmarketriskparameterssupplied.
58
Trading book: Banks should report exposures included in the "Financial assets held for
trading"portfolioafteroffsettingthecashshortpositionshavingthesamematurities.
3.6 Noninterestincomeandexpenses
3.6.1
Overview
194. Theprojectionsofnoninterestincomeandexpensesascoveredinthissubsectionhaveto
excludeanyP&Lpositionscoveredintheapproachesforcreditrisk,marketrisk,sovereignrisk,
securitisationorcostoffunding.AllitemsfollowIFRSdefinitions.Inparticulartheprojection
canonlycoverasubsetofitemsinnetfeeandcommissionincome,otheroperatingincome,
administrativeandotherexpensesandotherincome(seetemplate).
195. Banks will have to use their own methodology in projecting noninterest income and
expensepaths,i.e.providetheirownperspectiveonthesensitivityoftherespectiveP&Litems
tothemacroeconomicscenario.Bothabaselineandanadversecasewillhavetobecovered.
Itisrecommendedthattheprojectionsincorporatebothexogenousfactorsandbankspecific
characteristics.Banksownprojectionsaresubjecttotherequirementsinsubsections3.6.2.
196. Theprojectionsofnoninterestincomeandexpensesshouldtakeintoaccountthespecific
developmentsoftheoriginatingcountry.Givenpotentialdifferencesinthebusinesscycleof
thesecountries,therespectiveincomeandexpensestreamsaccruedbythebankinquestion
willbeaffected.
197. Projected noninterest income relative to total assets in the base and adverse scenario
cannotbelargerthantheactual2013value.
198. Banks that are not able to provide their own projections should apply the following
approachforwhichhistoricalaveragesneedtobeadjustedforoneoffeffects:
For noninterest net income items apply the average of the respective ratio to total assets
over the last three years under the baseline scenario and assume other absolute
administrativeandotheroperatingexpensesremainattheir2013level;
Fornoninterestnetincomeitemsundertheadversescenariousetheaverageoverthetwo
yearswiththesmallestvaluesfortherespectiveratiostototalassetsthatoccurredoverthe
lastfiveyearsandassumeotherabsoluteadministrativeandotheroperatingexpensesremain
attheir2013level.
199. Banks projections will be subject to a thorough quality assurance analysis and will be
judgedagainstrelevantbenchmarks.
200. BanksshouldcommentinanaccompanyingnotehowhistoricalP&Litemsareaffectedby
mergers and acquisitions and how specific projected P&L values have been determined,
especiallyformemorandumitems.
59
3.6.2
Specificrequirementsregardingincomeorexpenseitems
201. Realised gains or losses: No realised gains or losses are expected from the sale financial
assetsandliabilitiesnotmeasuredatfairvaluethroughprofitandloss.
202. Dividends: Dividends received from financial assets (participation and other equity
positions,eitherinthetradingorinthebankingbook)shouldbebasedonlevelsasatendof
2013subjecttothemacroeconomicshock.
203. Exchangedifferencesfrombankingbook:TheeventualimpactintheP&Lduetoexchange
rates(takingintoconsideration,whereappropriate,theeffectofhedgingstrategies)mustbe
inlinewiththeexpectedevolutionoftheexchangerateinthemacroeconomicscenario.
204. Administrative and other operating expenses: Administrative and other operating
expenses cannot be lower than their 2013 value subject to exceptions for mandatory
restructuringplansasspecifiedinparagraph26.
205. Impairment on financial and nonfinancial assets: Impairments onparticipationsshallbe
computed in line with the result of the (IFRS) test of impairment. Impairment on residential
and commercial real estate will be computed by the application of the same haircuts as
appliedonrealestatefundsontheassets.
206. Other income disposals and discontinued operations: Disposals and discontinued
operationsarenotexpectedfortheperiodof20142016(staticbalancesheetassumption)
subjecttoexceptionsformandatoryrestructuringplansasspecifiedinparagraph26.
207. Tax effect and evolution of deferred tax assets: The tax regimes will be treated like
regulatorychanges.Thatis,theyareassumedasinplaceatthereferencedate,withchanges
only,ifagreedbylaw.Deferredtaxcredits,whereapplicable,mayberecognised.
208. Goodwill: The impact of impairments on goodwill should be estimated subject to the
macroeconomicshock.
209. Dividendspaid:Inthebaselinescenariothepayoutratioshouldbeestimatedbythebanks
and challenged by the competent authorities taking into consideration the eventual
declaration of dividend policies in the annual reports. In the adverse scenario, the payout
ratioisexpectedtobeinlinewiththeaverageofthelastthreeyearsunlessthereisclearand
compellingpreagreedevidencethatthebankwillalterthisbehaviour.
60
3.7 Operationalrisk
210. Banks are invited to estimate their operational risk P&L impact in accordance with the
macroeconomicscenariosandreducetheirprojectedincomerespectively.
211. Capital requirements for operational risk are taken into account in the exercise by
computingaproxyofyearonyearchangesinoperatingprofitoftheparticipatinginstitutions.
Stressedcapitalrequirementsaregivenascapitalrequirementforoperationalriskinprevious
periodplus15%ofyearonyearabsolutechangeinoperatingprofit.Capitalrequirementsfor
operationalriskcannotfallbelowthevalueasofyearend2013.
61
Annex1:Accompanyingdocuments
212. Thefollowingdocumentsaccompanythismethodologicalnote37:
ESRBmacroeconomicadversescenario;
EuropeanCommissionmacroeconomicbaselinescenario;
Marketriskscenarios;
Sovereignbondhaircuts;
Securitisationscenario.
37
ThetemplatesetwillbedistributedtobanksviaCAs.
62
Annex2:Overviewoftemplatecontent
Category
Template
Breakdown
Creditrisk
COREPexposure
classes
FIRB,AIRB,STA
Nondefaulted,
defaulted
Country
BalanceSheet
N/A
Advancedata
collection
N/A
Capital
COREPexposure
classes
FIRB,AIRB,STA
Nondefaulted,
defaulted
Country
Bankingbook
Tradingbook
Correlationtrading
portfolio
Debtinstruments
FXproducts
Equities
Commodities
Other
Residualmaturity
Country
Accounting
portfolios
Derivatives,other
Creditrisk
Securitisation
Marketrisk
Operationalrisk
Transitionalfloors
Other
Creditrisk
Securitisation
Transparencydata
Marketrisk
Sovereign
exposure
RWA
EvolutionofP&L
N/A
Restructuring
scenarios
N/A
Summary
N/A
Keyinformation
Exposure
RWA
Valueadjustmentsand
provisions
Defaultrates,lossrates,
PD,LGD
Highlevelonandoff
balancesheetitems
Selectedmemoitems
COREPCRR/CRDIV
capitalelements(full
andtransitioned
amounts)
Capitalratios
EUwidehurdlerates
Memoitemconvertible
instruments
Exposure
RWA
Valueadjustmentsand
provisions
Impairmentrates,
coverageratios
Periodand
scenario
2013
2012and
2013
2013
20142016:
baselineand
adverse
2013
20142016:
baselineand
adverse
EAD
RWA
Impairments
20132016
Baseline,
adverse
Netfairvalue
2013
Baseline,
adverse
Grossposition
Netposition
2013
After
adverse
scenario
RWA
2013
20142016:
baselineand
adverse
MainP&Lcomponents
Memoinfo:funding,
hedging,definedbenefit
pensionfunds
CET1Impact
RWAImpact
CET1
RWA
2013
20142016:
baselineand
adverse
20132016
2013
and2016
63
Category
Template
Breakdown
Keyinformation
Periodand
scenario
3ycumulativelosses
EUwidehurdlerates
Memoinfoabout
convertibleinstruments
CreditRisk
Funding
COREPexposure
classes
FIRB,AIRB,STA
Nondefaulted,
defaulted
Country
AssetsbyCOREP
exposureclasses
Liabilitiesby
financingsource
Fixed/floatingrate
Remainingmaturity
Existing/new
business
Currency
EvolutionofP&L
N/A
RWAGeneral
Evolution
Creditrisk(per
regulatory
approach)
Securitisation
(banking/trading
book)
Tradingbook
Operationalrisk
Transitionalfloors
RWASTAFloor
CreditRisk
COREPexposure
classes
RWAIRBFloor
CreditRisk
COREPexposure
classes
RWATrading
Book
RWAcomponents
MarketRisk
simplified
N/A
MarketRisk
comprehensive
Detailedlistofrisk
factors
Securitisation
Summary
Accountingportfolio
Calculationsupport
andvalidationdata
Default
Impairment
Provisions
Coverage
2013
20142016:
baselineand
adverse
Amounts
Yield
Maturity
Starting
values2013
20142016:
baselineand
adverse
P&Lcomponents
Memoitemsfunding,
hedging,definedbenefit
pensionfunds
2013
20142016:
baselineand
adverse
RWA
2013
20142016:
baselineand
adverse
Nettradingincome
Lossescomparedto
previousyears
Grossexposure
Fairvalue
P&Lsensitivity
EstimatedP&L
2013
20142016:
baselineand
adverse
2013
20142016:
baselineand
adverse
2013
20142016:
baselineand
adverse
20092013
Baseline,
adverse
Baseline,
adverse+4
historical
scenarios
Exposure
20132016
RWA
RWA
RegulatoryEL
Provisions
RWAbeforeandafter
floor
64
Category
Template
Breakdown
Regulatory
approach
Sovereign
exposure
Calculation
supportand
validationdata
(additional)
Residualmaturity
Country
Accounting
portfoliossubjectto
shocks
Derivatives,other
Capital
N/A
Restructuring
scenarios
CreditRisk(6
templates:one
perprojected
yearforeach
scenario)
N/A
Securitisation
BankingBook
STA
Riskprofile
(low/medium/high)
Ratingcategory
Securitisation
TradingBook
STA
Riskprofile
(low/medium/high)
Ratingcategory
Securitisation
BankingBook
IRB
Securitisation
TradingBookIRB
MarketRiskCVA
AFSand
designatedat
fairvalueassets
COREPexposure
classes
TOTAL,IRB,STA
Country
Riskprofile
(low/medium/high)
Ratingcategory
Granular/non
granular
Riskprofile
(low/medium/high)
Ratingcategory
Granular/non
granular
Allcounterparties
CentralBanksand
CCP
UnderCSA
Accountingportfolio
Products
Keyinformation
Periodand
scenario
RWA
Impairments
Fairvaluechangesfor
AFSandFVOportfolios
Baseline,
adverse
2013
After
adverse
scenario
Grossvalue
Netfairvalue
Haircuts
Valuesafterhaircuts
COREPCRR/CRDIV
capitalelements(full
andtransitioned
amounts)
Capitalratios
EUwidehurdlerates
Memoinfoabout
convertibleinstruments
CET1Impact
RWAImpact
Itemsneededto
sequentiallyestimate
default,impairmentand
RWAaccordingtothe
methodology
Exposure
Impairmentandother
adjustments
RWA
Exposure
Impairmentandother
adjustments
RWA
20132016
Starting
values2013
20142016:
baselineand
adverse
2013
20142016:
baselineand
adverse
2013
20142016:
baselineand
adverse
EAD
RWA
Impairments
20132016
Baseline,
adverse
EAD
RWA
Impairments
20132016
Baseline,
adverse
FairValue
Baseline,
adverse+4
historical
scenarios
FairValue
Estimatedprofit/losses
Baseline,
adverse+4
historical
scenarios
2013
20142016:
baselineand
adverse
65
Annex3:EUwidestresstestsampleof
banks
Country BankName
AT
BAWAGP.S.K.BankfrArbeitundWirtschaftundsterreichischePostsparkasseAG
ErsteGroupBankAG
RaiffeisenlandesbankObersterreichAG
RaiffeisenlandesbankNiedersterreichWienAG
RaiffeisenZentralbanksterreichAG
sterreichischeVolksbankenAGwithcreditinstitutionsaffiliatedaccordingtoArticle10oftheCRR
BE
AXABankEuropeS.A.
BelfiusBanqueS.A.
DexiaNV*
Investar(HoldingofArgentaBankenVerzekeringsgroep)
KBCGroupNV
CY
BankofCyprusPublicCompanyLtd
CooperativeCentralBankLtd
HellenicBankPublicCompanyLtd
DE
AarealBankAG
BayerischeLandesbank
CommerzbankAG
DekaBankDeutscheGirozentrale
DeutscheApothekerundrztebankeG
DeutscheBankAG
DZBankAGDeutscheZentralGenossenschaftsbank
HASPAFinanzholding
HSHNordbankAG
HypoRealEstateHoldingAG
66
Country BankName
IKBDeutscheIndustriebankAG
KfWIPEXBankGmbH
LandesbankBadenWrttemberg
LandesbankBerlinHoldingAG
LandesbankHessenThringenGirozentrale
LandeskreditbankBadenWrttembergFrderbank
LandwirtschaftlicheRentenbank
MnchenerHypothekenbankeG
NorddeutscheLandesbankGirozentrale
NRW.Bank
VolkswagenFinancialServicesAG
WGZBankAGWestdeutscheGenossenschaftsZentralbank
Wstenrot & Wrttembergische AG (W&W AG) (Holding of Wstenrot Bank AG Pfandbriefbank and
WstenrotBausparkasseAG)
DK
DanskeBank
Nykredit
JyskeBank
Sydbank
ES
BancoBilbaoVizcayaArgentaria,S.A.
BancodeSabadell,S.A.
BancoFinancieroydeAhorros,S.A.
BancoMareNostrum,S.A.
BancoPopularEspaol,S.A.
BancoSantander,S.A.
Bankinter,S.A.
CajadeAhorrosyM.P.deZaragoza,AragnyRioja
CajadeAhorrosyPensionesdeBarcelona
CajaEspaadeInversiones,SalamancaySoria,CAMP
67
Country BankName
CajasRuralesUnidas,SociedadCooperativadeCrdito
CatalunyaBanc,S.A.
Kutxabank,S.A.
Liberbank,S.A.
MPCARonda,Cdiz,Almera,Mlaga,AntequerayJan
NCGBanco,S.A.
FI
OPPohjolaGroup
FR
BanquePSAFinance
BNPParibas
C.R.H.CaissedeRefinancementdelHabitat
GroupeBPCE
GroupeCrditAgricole
GroupeCrditMutuel
LaBanquePostale
BPIFrance(BanquePubliquedInvestissement)
RCIBanque
SocitdeFinancementLocal
SocitGnrale
GR
AlphaBank,S.A.
EurobankErgasias,S.A.
NationalBankofGreece,S.A.
PiraeusBank,S.A.
HU
OTPBankLtd
IE
AlliedIrishBanksplc
Permanenttsbplc
TheGovernorandCompanyoftheBankofIreland
IT
BancaCarigeS.P.A.CassadiRisparmiodiGenovaeImperia
68
Country BankName
BancaMontedeiPaschidiSienaS.p.A.
BancaPiccoloCreditoValtellinese,SocietCooperativa
BancaPopolareDell'EmiliaRomagnaSocietCooperativa
BancaPopolareDiMilanoSocietCooperativaAResponsabilitLimitata
BancaPopolarediSondrio,SocietCooperativaperAzioni
BancaPopolarediVicenzaSocietCooperativaperAzioni
BancoPopolareSocietCooperativa
CreditoEmilianoS.p.A.
IccreaHoldingS.p.A
IntesaSanpaoloS.p.A.
MediobancaBancadiCreditoFinanziarioS.p.A.
UniCreditS.p.A.
UnioneDiBancheItalianeSocietCooperativaPerAzioni
VenetoBancaS.C.P.A.
LU
BanqueetCaissed'Epargnedel'Etat,Luxembourg
Precision Capital S.A. (Holding of Banque Internationale Luxembourg and KBL European Private Bankers
S.A.)
LV
ABLVBank,AS
MT
BankofVallettaplc
NL
ABNAMROBankN.V.
BankNederlandseGemeentenN.V.
CoperatieveCentraleRaiffeisenBoerenleenbankB.A.
INGBankN.V.
NederlandseWaterschapsbankN.V.
SNSBankN.V.
NO
DNBBankASA
PL
PowszechnaKasaOszczdnociBankPolskiS.A(PKOBankPolski)
BankHandlowywWarszawieS.A.
69
Country BankName
BankBPHS.A.
BankOchronyrodowiskaS.A.
GETINNOBLEBANKS.A.
ALIORBANKS.A.
PT
BancoBPI,S.A.
BancoComercialPortugus,S.A.
CaixaGeraldeDepsitos,S.A.
EspritoSantoFinancialGroup,S.A.
SE
NordeaBankAB(publ)
SkandinaviskaEnskildaBankenAB(publ)(SEB)
SvenskaHandelsbankenAB(publ)
SwedbankAB(publ)
SI
NovaKreditnaBankaMaribord.d.
NovaLjubljanskabankad.d.
SIDSlovenskaizvoznainrazvojnabanka,d.d.
UK
Barclaysplc
HSBCHoldingsplc
LloydsBankingGroupplc
RoyalBankofScotlandGroupplc
*The assessment methodology for this group will duly take into account its specific situation, and in
particular thefact that an extensive assessment of its financial position and risk profile has alreadybeen
carried out in the framework of the plan initiated in October 2011 and approved by the European
Commissionon28December2012.
70

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METHODOLOGICALNOTEEUWIDESTRESSTEST2014

Projected creditrisk parametersto benchmarkfor instancethe evolutionofimpairments or

Collateral with substitution effects, as defined in COREP (STA: Sum of columns 5 to 8

66.Projections under the scenarios: Tomakeexplicitthatprojecteddefaultratesandlossrates

76.Irrespective of which approach banks follow to calculate stressed pointintime parameters,

Banks ( g r o u p l e v e l ) whose total market risk capital requirement is greater than 5% of

If good quality data is available in sufficient quantity to support a statistical

If good quality data is available in sufficient quantity to support a statistical

will be subject to a thorough quality assurance analysis, including a comparison against

Tn1 ; maturity 1 year / Tn1

incomecanbewrittenas NII ex, n Tn 1 1 n rex , n Tn 1 n rex , n / 2 whererex,n

Incomeearnedbynewpositions,whichis NII new, n N n rnew, n / 2

Tntype Entype N ntype

Entype 1 ntype Tntype

where type float , fixed .

effective interestrate for

effective interestrate for

Direct positions: Exposures to be reported include the positions towards sovereign

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