For all general interest rate risk factors, including inflation risk and cross-currency basis risk, there shall be one bucket per currency, each containing different types of risk factor.

The delta general interest rate risk factors applicable to interest rate-sensitive instruments shall be the relevant risk-free rates per currency and per each of the following maturities: 0,25 years, 0,5 years, 1 year, 2 years, 3 years, 5 years, 10 years, 15 years, 20 years, 30 years. Institutions shall assign risk factors to the specified vertices by linear interpolation or by using a method that is most consistent with the pricing functions used by the independent risk control function of the institution to report market risk or profits and losses to senior management.

Institutions shall obtain the risk-free rates per currency from money market instruments held in the trading book of the institution that have the lowest credit risk, such as overnight index swaps.

Where institutions cannot apply the approach referred to in paragraph 2, the risk-free rates shall be based on one or more market-implied swap curves used by the institution to mark positions to market, such as the interbank offered rate swap curves.

Where the data on market-implied swap curves described in paragraph 2 and the first subparagraph of this paragraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency.

Where institutions use the general interest rate risk factors derived in accordance with the procedure set out in the second subparagraph of this paragraph for sovereign debt instruments, the sovereign debt instrument shall not be exempted from the own funds requirements for credit spread risk. In those cases, where it is not possible to disentangle the risk-free rate from the credit spread component, the sensitivity to the risk factor shall be allocated both to the general interest rate risk and to credit spread risk classes.

In the case of general interest rate risk factors, each currency shall constitute a separate bucket. Institutions shall assign risk factors within the same bucket, but with different maturities, a different risk weight, in accordance with Section 6.

Institutions shall apply additional risk factors for inflation risk to debt instruments whose cash flows are functionally dependent on inflation rates. Those additional risk factors shall consist of one vector of market-implied inflation rates of different maturities per currency. For each instrument, the vector shall contain as many components as there are inflation rates used as variables by the institution's pricing model for that instrument.

Institutions shall calculate the sensitivity of the instrument to the additional risk factor for inflation risk referred to in paragraph 4 as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Each currency shall constitute a separate bucket. Within each bucket, institutions shall treat inflation as a single risk factor, regardless of the number of components of each vector. Institutions shall offset all sensitivities to inflation within a bucket, calculated as described in this paragraph, in order to give rise to a single net sensitivity per bucket.

Debt instruments that involve payments in different currencies shall also be subject to cross-currency basis risk between those currencies. For the purposes of the sensitivities-based method, the risk factors to be applied by institutions shall be the cross-currency basis risk of each currency over either US dollar or euro. Institutions shall compute cross currency bases that do not relate to either basis over US dollar or basis over euro either on ‘ basis over US dollar ’ or ‘ basis over euro ’ .

Each cross-currency basis risk factor shall consist of one vector of cross-currency basis of different maturities per currency. For each debt instrument, the vector shall contain as many components as there are cross-currency bases used as variables by the institution's pricing model for that instrument. Each currency shall constitute a different bucket.

Institutions shall calculate the sensitivity of the instrument to the cross-currency basis risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Each currency shall constitute a separate bucket. Within each bucket there shall be two possible distinct risk factors: basis over euro and basis over US dollar, regardless of the number of components there are in each cross-currency basis vector. The maximum number of net sensitivities per bucket shall be two.

The curvature general interest rate risk factors to be applied by institutions shall consist of one vector of risk-free rates, representing a specific risk-free yield curve, per currency. Each currency shall constitute a different bucket. For each instrument, the vector shall contain as many components as there are different maturities of risk-free rates used as variables by the institution's pricing model for that instrument.

Institutions shall calculate the sensitivity of the instrument to each risk factor used in the curvature risk formula in accordance with Article 325g. For the purposes of the curvature risk, institutions shall consider vectors corresponding to different yield curves and with a different number of components as the same risk factor, provided that those vectors correspond to the same currency. Institutions shall offset sensitivities to the same risk factor. There shall be only one net sensitivity per bucket.

There shall be no curvature risk own funds requirements for inflation and cross currency basis risks.

The delta credit spread risk factors to be applied by institutions to non-securitisation instruments that are sensitive to credit spread shall be the issuer credit spread rates of those instruments, inferred from the relevant debt instruments and credit default swaps, and mapped to each of the following maturities: 0,5 years, 1 year, 3 years, 5 years, 10 years. Institutions shall apply one risk factor per issuer and maturity, regardless of whether those issuer credit spread rates are inferred from debt instruments or credit default swaps. The buckets shall be sector buckets, as referred to in Section 6, and each bucket shall include all the risk factors allocated to the relevant sector.

The vega credit spread risk factors to be applied by institutions to options with non-securitisation underlyings that are sensitive to credit spread shall be the implied volatilities of the underlying's issuer credit spread rates inferred as laid down in paragraph 1, which shall be mapped to the following maturities in accordance with the maturity of the option subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years. The same buckets shall be used as the buckets that were used for the delta credit spread risk for non-securitisation.

The curvature credit spread risk factors to be applied by institutions to non-securitisation instruments shall consist of one vector of credit spread rates, representing a credit spread curve specific to the issuer. For each instrument, the vector shall contain as many components as there are different maturities of credit spread rates used as variables in the institution's pricing model for that instrument. The same buckets shall be used as the buckets that were used for the delta credit spread risk for non-securitisation.

Institutions shall calculate the sensitivity of the instrument to each risk factor used in the curvature risk formula in accordance with Article 325g. For the purposes of the curvature risk, institutions shall consider vectors inferred from either relevant debt instruments or credit default swaps and with a different number of components as the same risk factor, provided that those vectors correspond to the same issuer.

Institutions shall apply the credit spread risk factors referred to in paragraph 3 to securitisation positions that are included in the ACTP, as referred to in Article 325(6), (7) and (8),

Institutions shall apply the credit spread risk factors referred to in paragraph 5 to securitisation positions that are not included in the ACTP, as referred to in Article 325(6), (7) and (8).

The buckets applicable to the credit spread risk for securitisations that are included in the ACTP shall be the same as the buckets applicable to the credit spread risk for non-securitisations, as referred to in Section 6.

The buckets applicable to the credit spread risk for securitisations that are not included in the ACTP shall be specific to that risk-class category, as referred to in Section 6.

Institutions shall calculate the sensitivity of the securitisation position to each risk factor used in the curvature risk formula as specified in Article 325g. For the purposes of the curvature risk, institutions shall consider vectors inferred either from relevant debt instruments or credit default swaps and with a different number of components as the same risk factor, provided that those vectors correspond to the same issuer.

The buckets for all equity risk factors shall be the sector buckets referred to in Section 6.

The equity delta risk factors to be applied by institutions shall be all the equity spot prices and all equity repo rates.

For the purposes of equity risk, a specific equity repo curve shall constitute a single risk factor, which is expressed as a vector of repo rates for different maturities. For each instrument, the vector shall contain as many components as there are different maturities of repo rates that are used as variables by the institution's pricing model for that instrument.

Institutions shall calculate the sensitivity of an instrument to an equity risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Institutions shall offset sensitivities to the repo rate risk factor of the same equity security, regardless of the number of components of each vector.

The equity vega risk factors to be applied by institutions to options with underlyings that are sensitive to equity shall be the implied volatilities of equity spot prices which shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years. There shall be no own funds requirements for vega risk for equity repo rates.

The equity curvature risk factors to be applied by institutions to options with underlyings that are sensitive to equity are all the equity spot prices, regardless of the maturity of the corresponding options. There shall be no curvature risk own funds requirements for equity repo rates.

The buckets for all commodity risk factors shall be the sector buckets referred to in Section 6.

The commodity delta risk factors to be applied by institutions to commodity sensitive instruments shall be all the commodity spot prices per commodity type and per each of the following maturities: 0,25 years, 0,5 years, 1 year, 2 years, 3 years, 5 years, 10 years, 15 years, 20 years, 30 years. Institutions shall only consider two commodity prices of the same type of commodity, and with the same maturity to constitute the same risk factor where the set of legal terms regarding the delivery location are identical.

The commodity vega risk factors to be applied by institutions to options with underlyings that are sensitive to commodity shall be the implied volatilities of commodity prices per commodity type, which shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years. Institutions shall consider sensitivities to the same commodity type and allocated to the same maturity to be a single risk factor which institutions shall then offset.

The commodity curvature risk factors to be applied by institutions to options with underlyings that are sensitive to commodity shall be one set of commodity prices with different maturities per commodity type, expressed as a vector. For each instrument, the vector shall contain as many components as there are prices of that commodity that are used as variables by the institution's pricing model for that instrument. Institutions shall not differentiate between commodity prices by delivery location.

The sensitivity of the instrument to each risk factor used in the curvature risk formula shall be calculated as specified in Article 325g. For the purposes of curvature risk, institutions shall consider vectors having a different number of components to constitute the same risk factor, provided that those vectors correspond to the same commodity type.

The foreign exchange delta risk factors to be applied by institutions to foreign exchange sensitive instruments shall be all the spot exchange rates between the currency in which an instrument is denominated and the institution's reporting currency. There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity.

The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between the currency pairs referred to in paragraph 1. Those implied volatilities of exchange rates shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years.

The foreign exchange curvature risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the same as those referred to in paragraph 1.

Institutions shall not be required to distinguish between onshore and offshore variants of a currency for all foreign exchange delta, vega and curvature risk factors.

Institutions shall calculate the delta credit spread risk sensitivities for all securitisation and non-securitisation positions as follows:

$S_{{\mathrm{CS}}_{\mathrm{kt}}}=\frac{V_i\left({\mathrm{CS}}_{\mathrm{kt}}+\mathrm{0,0001,\; x,\; y\; \dots }\right)-V_i\left({\mathrm{CS}}_{\mathrm{kt}}\mathrm{,\; x,\; y\; \dots }\right)}{\mathrm{0,0001}}$

where:

• $S_{{\mathrm{CS}}_{\mathrm{kt}}}$

  the delta credit spread risk sensitivities for all securitisation and non-securitisation positions;

• cs _kt

  the value of the credit spread rate of an issuer j at maturity t;

• V _i (.)

  the pricing function of instrument i; and

• x,y

  risk factors other than cs _kt in the pricing function V _i .

Institutions shall calculate the delta commodity risk sensitivities to each risk factor k as follows:

$S_k=\frac{V_i\left({\mathrm{1,01\; CTY}}_k\mathrm{,\; \gamma ,\; z\; \dots }\right)-V_i\left({\mathrm{CTY}}_k\mathrm{,\; \gamma ,\; z\; \dots }\right)}{\mathrm{0,01}}$

where:

• s _k

  the delta commodity risk sensitivities;

• k

  a given commodity risk factor;

• CTY _k

  the value of risk factor k;

• V _i (.)

  the market value of instrument i as a function of risk factor k; and

• y, z

  risk factors other than CTY _k in the pricing model of instrument i.

Institutions shall calculate the delta foreign exchange risk sensitivities to each foreign exchange risk factor k as follows:

$S_k=\frac{V_i\left({\mathrm{1,01\; FX}}_k\mathrm{,\; y,\; z\; \dots }\right)-V_i\left({\mathrm{FX}}_k\mathrm{,\; y,\; z\; \dots }\right)}{\mathrm{0,01}}$

where:

• s _k

  the delta foreign exchange risk sensitivities;

• k

  a given foreign exchange risk factor;

• FX _k

  the value of the risk factor;

• V _i (.)

  the market value of instrument i as a function of the risk factor k; and

• y, z

  risk factors other than FX _k in the pricing model of instrument i.

Institutions shall calculate the vega risk sensitivity of an option to a given risk factor k as follows:

$S_k=\frac{V_i\left(\mathrm{1,01}+{\mathrm{vol}}_k\mathrm{,\; x,\; y}\right)-V_i\left({\mathrm{vol}}_k\mathrm{,\; x,\; y}\right)}{\mathrm{0,01}}$

where:

• s _k

  the vega risk sensitivity of an option;

• k

  a specific vega risk factor, consisting of an implied volatility;

• vol _k

  the value of that risk factor, which should be expressed as a percentage; and

• x,y

  risk factors other than vol _k in the pricing function V _i .

In the case of risk classes where vega risk factors have a maturity dimension, but where the rules to map the risk factors are not applicable because the options do not have a maturity, institutions shall map those risk factors to the longest prescribed maturity. Those options shall be subject to the residual risks add-on.

In the case of options that do not have a strike or barrier and options that have multiple strikes or barriers, institutions shall apply the mapping to strikes and maturity used internally by the institution to price the option. Those options shall also be subject to the residual risks add-on.

Institutions shall not calculate the vega risk for securitisation tranches included in the ACTP, as referred to in Article 325(6), (7) and (8), that do not have an implied volatility. Own funds requirements for delta and curvature risk shall be computed for those securitisation tranches.

Institutions shall derive sensitivities from the institution's pricing models that serve as a basis for reporting profit and loss to senior management, using the formulas set out in this Subsection.

By way of derogation from the first subparagraph, competent authorities may require an institution that has been granted permission to use the alternative internal model approach set out in Chapter 1b to use the pricing functions of the risk-measurement system of their internal model approach in the calculation of sensitivities under this Chapter for the calculation and reporting of the own funds requirements for market risk in accordance with Article 430b(3).

When calculating delta risk sensitivities of instruments with optionality as referred to in point (a) of Article 325e(2), institutions may assume that the implied volatility risk factors remain constant.

Institutions shall calculate all sensitivities except for the sensitivities to credit valuation adjustments.

Institutions shall calculate the gross JTD amounts for each long exposure to debt instruments as follows:

• JTD _long = max {LGD V _notional + P&L _long + Adjustment _long ; 0}

  where:

  • JTD _long

    the gross JTD amount for the long exposure;

  • V _notional

    the notional amount of the instrument;

  • P&L _long

    a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter the formula with a positive sign and losses with a negative; and

  • Adjustment _long

    the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter the Adjustment _long term with a positive sign and decreases with a negative sign.

Institutions shall calculate the gross JTD amounts for each short exposure to debt instruments as follows:

• JTD _short = min {LGD V _notional + P&L _short + Adjustment _short ; 0}

  where:

  • JTD _short

    the gross JTD amount for the short exposure;

  • V _notional

    the notional amount of the instrument that shall enter into the formula with a negative sign;

  • P&L _short

    a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and

  • Adjustment _short

    the amount by which, due to the structure of the derivative instrument, the institution's gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter the Adjustment _short term with a positive sign and increases shall enter the Adjustment _short term with a negative sign.

For exposures to equity instruments, institutions shall calculate the gross JTD amounts as follows, instead of using the formulas referred to in paragraphs 1 and 2:

• JTD _long = max {LGD · V + P&L _long + Adjustment _long ; 0}

• JTD _short = min {LGD · V + P&L _short + Adjustment _short ; 0}

  where:

  • JTD _long

    the gross JTD amount for the long exposure;

  • JTD _short

    the gross JTD amount for the short exposure; and

  • V

    the fair value of the equity or, in the case of derivative instruments with equity underlyings, the fair value of the equity underlying.

Institutions shall assign an LGD of 100 % to equity instruments for the purposes of the calculation set out in paragraph 5.

In the case of exposures to default risk arising from derivative instruments whose pay-offs in the event of default of the obligor are not related to the notional amount of a specific instrument issued by that obligor or to the LGD of the obligor or an instrument issued by that obligor, institutions shall use alternative methodologies to estimate the gross JTD amounts.

Institutions shall calculate net JTD amounts by offsetting the gross JTD amounts of short exposures and long exposures. Offsetting shall only be possible between exposures to the same obligor where the short exposures have the same seniority as, or lower seniority than, the long exposures.

Where no offsetting is possible gross JTD amounts shall equal net JTD amounts in the case of exposures with maturities of one year or more. Gross JTD amounts with maturities of less than one year shall be multiplied by the ratio of the exposure's maturity relative to one year, with a floor of three months, to calculate net JTD amounts.

For the purposes of paragraphs 2 and 3, the maturities of the derivative contracts shall be considered, rather than those of their underlyings. Cash equity exposures shall be assigned a maturity of either one year or three months, at the institution's discretion.

Net JTD amounts, irrespective of the type of counterparty, shall be multiplied by the default risk weights that correspond to their credit quality, as specified in Table 2:

Exposures which would receive a 0 % risk-weight under the Standardised Approach for credit risk in accordance with Chapter 2 of Title II shall receive a 0 % default risk weight for the own funds requirements for the default risk.

The weighted net JTD shall be allocated to the following buckets: corporates, sovereigns, and local governments/municipalities.

Weighted net JTD amounts shall be aggregated within each bucket, in accordance with the following formula:

• DRC _b = max {(Σ _{i ∈ long} RW _i · net JTD _i ) – WtS · (Σ _{i ∈ short} RW _i · |net JTD _i |); 0}

  where:

  • DRC _b

    the own funds requirement for the default risk for bucket b;

  • i

    the index that denotes an instrument belonging to bucket b;

  • RW _i

    the risk weight; and

  • WtS

    a ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated as follows:

    $\mathrm{WtS}=\frac{\sum {\mathrm{netJTD}}_{\mathrm{long}}}{\sum {\mathrm{netJTD}}_{\mathrm{long}}+\sum \left|{\mathrm{netJTD}}_{\mathrm{short}}\right|}$

For the purposes of calculating the DRC _b and the WtS, the long positions and short positions shall be aggregated for all positions within a bucket, regardless of the credit quality step to which those positions are allocated, to produce the bucket-specific own funds requirements for the default risk.

The final own funds requirement for the default risk for non-securitisations shall be calculated as the simple sum of the bucket-level own funds requirements.

Gross jump-to-default amounts for securitisation exposures shall be their market value or, if their market value is not available, their fair value determined in accordance with the applicable accounting framework.

Net jump-to-default amounts shall be determined by offsetting long gross jump-to-default amounts and short gross jump-to-default amounts. Offsetting shall only be possible between securitisation exposures with the same underlying asset pool and belonging to the same tranche. No offsetting shall be permitted between securitisation exposures with different underlying asset pools, even where the attachment and detachment points are the same.

Where, by decomposing or combining existing securitisation exposures, other existing securitisation exposures can be perfectly replicated, except for the maturity dimension, the exposures resulting from that decomposition or combination may be used instead of the existing securitisation exposures for the purposes of offsetting.

Where, by decomposing or combining existing exposures in underlying names, the entire tranche structure of an existing securitisation exposure can be perfectly replicated, the exposures resulting from that decomposition or combination may be used instead of the existing securitisation exposures for the purposes of offsetting. Where underlying names are used in that manner, they shall be removed from the non-securitisation default risk treatment.

Article 325x shall apply to both existing securitisation exposures and to securitisation exposures used in accordance with paragraph 3 or 4 of this Article. The relevant maturities shall be those of the securitisation tranches.

Net JTD amounts of securitisation exposures shall be multiplied by 8 % of the risk weight that applies to the relevant securitisation exposure, including STS securitisations, in the non-trading book in accordance with the hierarchy of approaches set out in Section 3 of Chapter 5 of Title II and irrespective of the type of counterparty.

A maturity of one year shall be applied to all tranches, where risk weights are calculated in accordance with the SEC-IRBA and SEC-ERBA.

The risk-weighted JTD amounts for individual cash securitisation exposures shall be capped at the fair value of the position.

In order to assign a securitisation exposure to a bucket, institutions shall rely on a classification commonly used in the market. Institutions shall assign each securitisation exposure to only one of the buckets referred to in paragraph 4. Any securitisation exposure that an institution cannot assign to a bucket for an asset class or region shall be assigned to the asset class ‘ other retail ’ or ‘ other wholesale ’ or to the region ‘ rest of the world ’ , respectively.

Weighted net JTD amounts shall be aggregated within each bucket in the same manner as for default risk of non-securitisation exposures, using the formula in Article 325y(4), resulting in the own funds requirement for the default risk for each bucket.

The final own funds requirement for the default risk for securitisations not included in the ACTP shall be calculated as the simple sum of the bucket-level own funds requirements.

For the ACTP, the own funds requirements shall include the default risk for securitisation exposures and for non-securitisation hedges. Those hedges shall be removed from the default risk calculations for non-securitisation. There shall be no diversification benefit between the own funds requirements for the default risk for non-securitisations, the own funds requirements for the default risk for securitisations not included in the ACTP and own funds requirements for the default risk for securitisations included in the ACTP.

For traded non-securitisation credit and equity derivatives, JTD amounts by individual constituents shall be determined by applying a look-through approach.

The gross JTD amounts for securitisation exposures and non-securitisation exposures in the ACTP shall be their market value or, if their market value is not available, their fair value determined in accordance with the applicable accounting framework.

Risk-weighted net JTD amounts shall be assigned to buckets that correspond to an index.

Weighted net JTD amounts shall be aggregated within each bucket in accordance with the following formula:

• DRC _b = max {(Σ _{i ∈ long} RW _i · net JTD _i ) – WtS _ACTP · (Σ _{i ∈ short} RW _i · |net JTD _i |); 0}

  where:

  • DRC _b

    the own funds requirement for the default risk for bucket b;

  • i

    an instrument belonging to bucket b; and

  • WtS _ACTP

    the ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated in accordance with the WtS formula set out in Article 325y(4), but using long positions and short positions across the entire ACTP and not just the positions in the particular bucket.

Institutions shall calculate the own funds requirements for the default risk for the ACTP by using the following formula:

${\mathrm{DRC}}_{\mathrm{ACTP}}=\max \left\{\sum _b\left(\max \left[{\mathrm{DRC}}_b\mathrm{,\; 0}\right]+\mathrm{0,5}\times \left(\min \left[{\mathrm{DRC}}_b\mathrm{,\; 00}\right]\right)\mathrm{;\; 0}\right)\right\}$

where:

• DRC _ACTP

  the own funds requirement for the default risk for the ACTP; and

• DRC _b

  the own funds requirement for the default risk for bucket b.

For currencies not included in the most liquid currency sub-category as referred to in point (b) of Article 325bd(7), the risk weights of the sensitivities to the risk-free rate risk factors for each bucket in Table 3 shall be specified pursuant to the delegated act referred to in Article 461a.

A common risk weight both for all the sensitivities to inflation and for cross currency basis risk factors shall be specified in the delegated act referred to in Article 461a.

For the currencies included in the most liquid currency sub-category as referred to in point (b) of 325bd(7) and the domestic currency of the institution, the risk weights of the risk-free rate risk factors shall be the risk weights referred to in Table 3 divided by √2.

Between two weighted sensitivities of general interest rate risk factors WS _k and WS _l within the same bucket, and with the same assigned maturity but corresponding to different curves, correlation ρ _kl shall be set at 99,90 %.

Between two weighted sensitivities of general interest rate risk factors WS _k and WS _l within the same bucket, corresponding to the same curve, but having different maturities, correlation shall be set in accordance with the following formula:

$\max \left[e^{\left(-\theta \times \frac{\left|T_k-T_l\right|}{\min \left\{T_k{\mathrm{;\; T}}_l\right\}}\right)}\mathrm{;\; 40 \%}\right]$

where:

• T _k (respectivelyT _l )

  the maturity that relates to the risk free rate;

• θ

  3 %

Between two weighted sensitivities of general interest rate risk factors WS _k and WS _l within the same bucket, corresponding to different curves and having different maturities, the correlation ρ _kl shall be equal to the correlation parameter specified in paragraph 2, multiplied by 99,90 %.

Between any given weighted sensitivity of general interest rate risk factors WS _k and any given weighted sensitivity of inflation risk factors WS _l , the correlation shall be set at 40 %.

Between any given weighted sensitivity of cross-currency basis risk factors WS _k and any given weighted sensitivity of general interest rate risk factors WS _l , including another cross-currency basis risk factor, the correlation shall be set at 0 %.

The parameter γ _bc = 50 % shall be used to aggregate risk factors belonging to different buckets.

The parameter γ _bc = 80 % shall be used to aggregate an interest rate risk factor based on a currency as referred to in Article 325av(3) and an interest rate risk factor based on the euro.

Risk weights for the sensitivities to credit spread risk factors for non-securitisations shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 4:

To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to only one of the sector buckets in Table 4. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 18 in Table 4.

The correlation parameter ρ _{k l} between two sensitivities W S _k and W S _l within the same bucket shall be set as follows:

• ρ _kl = ρ _kl ^(name) · ρ _kl ^(tenor) · ρ _kl ^(basis)

  where:

  • ρ _kl ^(name) shall be equal to 1 where the two names of sensitivities k and l are identical, otherwise it shall be equal to 35 %;

  • ρ _kl ^(tenor) shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 65 %; and

  • ρ _kl ^(basis) shall be equal to 1 where the two sensitivities are related to the same curves, otherwise it shall be equal to 99,90 %.

The correlation parameters referred to in paragraph 1 of this Article shall not apply to bucket 18 in Table 4 of Article 325ah(1). The capital requirement for the delta risk aggregation formula within bucket 18 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket:

$K_{b^{\left(\mathrm{bucket\; 18}\right)}}={\sum }_k\left|{\mathrm{WS}}_k\right|$

The delta risk correlation ρ _{k l} shall be derived in accordance with Article 325ai, except that, for the purposes of this paragraph, ρ _{k l} ^(basis) shall be equal to 1 where the two sensitivities are related to the same curves, otherwise it shall be equal to 99,00 %.

The correlation γ _{b c} shall be derived in accordance with Article 325aj.

Risk weights for the sensitivities to credit spread risk factors for securitisation not included in the ACTP shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 7 and shall be specified for each bucket in Table 7 pursuant to the delegated act referred to in Article 461a:

To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each tranche to one of the sector buckets in Table 7. Risk exposures from any tranche that an institution cannot assign to a sector in such a manner shall be assigned to bucket 25.

Between two sensitivities W S _k and W S _l within the same bucket, the correlation parameter ρ _{k l} shall be set as follows:

• ρ _kl = ρ _kl ^(tranche) · ρ _kl ^(tenor) · ρ _kl ^(basis)

  where:

  • ρ _kl ^(thranche) shall be equal to 1 where the two names of sensitivities k and l are within the same bucket and are related to the same securitisation tranche (more than 80 % overlap in notional terms), otherwise it shall be equal to 40 %;

  • ρ _kl ^(tenor) shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 80 %; and

  • ρ _kl ^(basis) shall be equal to 1 where the two sensitivities are related to the same curves, otherwise it shall be equal to 99,90 %.

The correlation parameters referred to in paragraph 1 shall not apply to bucket 25 in Table 7 of Article 325am(1). The own funds requirement for the delta risk aggregation formula within bucket 25 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket:

$K_{b^{\left(\mathrm{bucket\; 25}\right)}}={\sum }_k\left|{\mathrm{WS}}_k\right|$

The correlation parameter γ _{b c} shall apply to the aggregation of sensitivities between different buckets and shall be set at 0 %.

The own funds requirement for bucket 25 shall be added to the overall risk class level capital, with no diversification or hedging effects recognised with any other bucket.

Risk weights for the sensitivities to equity and equity repo rate risk factors shall be specified for each bucket in Table 8 pursuant to the delegated act referred to in Article 461a:

For the purposes of this Article, what constitutes a small and a large market capitalisation shall be specified in the regulatory technical standards referred to in Article 325bd(7).

For the purposes of this Article, EBA shall develop draft regulatory technical standards to specify what constitutes an emerging market and to specify what constitutes an advanced economy.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021 .

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

When assigning a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to one of the sector buckets in Table 8 and shall assign all issuers from the same industry to the same sector. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 11 in Table 8. Multinational or multi-sector equity issuers shall be assigned to a particular bucket on the basis of the most material region and sector in which the equity issuer operates.

The delta risk correlation parameter ρ _kl between two sensitivities W S _k and W S _l within the same bucket shall be set at 99,90 % where one is a sensitivity to an equity spot price and the other a sensitivity to an equity repo rate, where both are related to the same equity issuer name.

The correlation parameter ρ _kl between two sensitivities W S _k and W S _l to equity repo rate within the same bucket shall be set in accordance with paragraph 2.

Between two sensitivities W S _k and W S _l within the same bucket where one is a sensitivity to an equity spot price and the other a sensitivity to an equity repo rate and both sensitivities relate to a different equity issuer name, the correlation parameter ρkl shall be set to the correlation parameters specified in paragraph 2, multiplied by 99,90 %.

The correlation parameters specified in paragraphs 1 to 4 shall not apply to bucket 11. The capital requirement for the delta risk aggregation formula within bucket 11 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket:

$K_{b^{\left(\mathrm{bucket\; 11}\right)}}={\sum }_k\left|{\mathrm{WS}}_k\right|$

For the purposes of this Article, any two commodities shall be considered distinct commodities where there exist in the market two contracts that are differentiated only by the underlying commodity to be delivered against each contract.

The correlation parameter ρ _{k l} between two sensitivities W S _k and W S _l within the same bucket shall be set as follows:

• ρ _kl = ρ _kl ^(commodity) · ρ _kl ^(tenor) · ρ _kl ^(basis)

  where:

  • ρ _kl ^(commodity) shall be equal to 1 where the two commodities of sensitivities k and l are identical, otherwise it shall be equal to the intra-bucket correlations in Table 10;

  • ρ _kl ^(tenor) shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 99 %; and

  • ρ _kl ^(basis) shall be equal to 1 where the two sensitivities are identical in the delivery location of a commodity, otherwise it shall be equal to 99,90 %.

The intra-bucket correlations ρ _kl ^(commodity) are:

Risk weight for all sensitivities to foreign exchange risk factors shall be specified in the delegated act referred to in Article 461a.

Notwithstanding paragraph 2, the risk weight of the foreign exchange risk factors concerning currencies referred to in paragraph 2 which participate in the ERM II with a formally agreed fluctuation band narrower than the standard band of plus or minus 15 % shall equal the maximum percentage fluctuation within that narrower band.

The risk weight of the foreign exchange risk factors included in the most liquid currency pairs sub-category as referred to in point (c) of 325bd(7) shall be the risk weight referred to in paragraph 1 of this Article divided by √2.

Where the daily exchange-rate data for the preceding three years show that a currency pair composed of euro and a non-euro currency of a Member State is constant and that the institution is always able to face a zero bid/ask spread on the respective trades related to that currency pair, the institution may apply the risk weight referred to in paragraph 1 divided by 2, provided that it has the express permission of its competent authority to do so.

Vega risk factors shall use the delta buckets referred to in Subsection 1.

The risk weight for a given vega risk factor k shall be determined as a share of the current value of that risk factor k which represents the implied volatility of an underlying, as described in Section 3.

The share referred to in paragraph 2 shall be made dependent on the presumed liquidity of each type of risk factor in accordance with the following formula:

${\mathrm{RW}}_k=\left(\mathrm{Value\; of\; risk\; factor\; k}\right)\times \min \left\{{\mathrm{RW}}_{\sigma }\times \frac{\sqrt{{\mathrm{LH}}_{\mathrm{risk\; class}}}}{\sqrt{10}}\mathrm{;\; 100\%}\right\}$

where:

• RW _k = the risk weight for a given vega risk factor k;

• RW _σ shall be set at 55 %; and

• LH _{risk class} is the regulatory liquidity horizon to be prescribed in the determination of each vega risk factor k. LH _{risk class} is determined in accordance with the following table:

  Table 11
  Risk class	LH risk class
  GIRR	60
  CSR non-securitisations	120
  CSR securitisations (ACTP)	120
  CSR securitisations (non-ACTP)	120
  Equity (large cap)	20
  Equity (small cap)	60
  Commodity	120
  Foreign exchange	40