X1PART THREECAPITAL REQUIREMENTS
TITLE IVOWN FUNDS REQUIREMENTS FOR MARKET RISK
CHAPTER 5Use of internal models to calculate own funds requirements
Section 1Permission and own funds requirements
Article 362Specific and general risks
Position risk on a traded debt instrument or equity instrument or derivative thereof may be divided into two components for purposes of this Chapter. The first shall be its specific risk component and shall encompass the risk of a price change in the instrument concerned due to factors related to its issuer or, in the case of a derivative, the issuer of the underlying instrument. The general risk component shall encompass the risk of a price change in the instrument due in the case of a traded debt instrument or debt derivative to a change in the level of interest rates or in the case of an equity or equity derivative to a broad equity-market movement unrelated to any specific attributes of individual securities.
Article 363Permission to use internal models
1.
After having verified an institution's compliance with the requirements of Sections 2, 3 and 4 as relevant, competent authorities shall grant permission to institutions to calculate their own funds requirements for one or more of the following risk categories by using their internal models instead of or in combination with the methods in Chapters 2 to 4:
(a)
general risk of equity instruments;
(b)
specific risk of equity instruments;
(c)
general risk of debt instruments;
(d)
specific risk of debt instruments;
(e)
foreign-exchange risk;
(f)
commodities risk.
2.
For risk categories for which the institution has not been granted the permission referred to in paragraph 1 to use its internal models, that institution shall continue to calculate own funds requirements in accordance with those Chapters 2, 3 and 4 as relevant. Permission by the competent authorities for the use of internal models shall be required for each risk category and shall be granted only if the internal model covers a significant share of the positions of a certain risk category.
3.
Material changes to the use of internal models that the institution has received permission to use, the extension of the use of internal models that the institution has received permission to use, in particular to additional risk categories, and the initial calculation of stressed value-at-risk in accordance with Article 365(2) require a separate permission by the competent authority.
Institutions shall notify the competent authorities of all other extensions and changes to the use of those internal models that the institution has received permission to use.
4.
EBA shall develop draft regulatory technical standards to specify the following:
(a)
the conditions for assessing materiality of extensions and changes to the use of internal models;
(b)
the assessment methodology under which competent authorities permit institutions to use internal models;
(c)
the conditions under which the share of positions covered by the internal model within a risk category shall be considered significant as referred to in paragraph 2.
EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014 .
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
Article 364Own funds requirements when using internal models
1.
Each institution using an internal model shall fulfil, in addition to own funds requirements calculated in accordance with Chapters 2, 3 and 4 for those risk categories for which permission to use an internal model has not been granted, an own funds requirement expressed as the sum of points (a) and (b):
(a)
the higher of the following values:
- (i)
its previous day's value-at-risk number calculated in accordance with Article 365(1) (VaR t-1 );
- (ii)
an average of the daily value-at-risk numbers calculated in accordance with Article 365(1) on each of the preceding sixty business days (VaR avg ), multiplied by the multiplication factor (m c ) in accordance with Article 366;
(b)
the higher of the following values:
- (i)
its latest available stressed-value-at-risk number calculated in accordance with Article 365(2) (sVaR t-1 ); and
- (ii)
an average of the stressed value-at-risk numbers calculated in the manner and frequency specified in Article 365(2) during the preceding sixty business days (sVaR avg ), multiplied by the multiplication factor (m s ) in accordance with Article 366;
2.
Institutions that use an internal model to calculate their own funds requirement for specific risk of debt instruments shall fulfil an additional own funds requirement expressed as the sum of the following points (a) and (b):
(a)
the own funds requirement calculated in accordance with Article 337 and 338 for the specific risk of securitisation positions and nth to default credit derivatives in the trading book with the exception of those incorporated in an own funds requirement for the specific risk of the correlation trading portfolio in accordance with Section 5 and, where applicable, the own funds requirement for specific risk in accordance with Chapter 2, Section 6, for those positions in CIUs for which neither the conditions in Article 350(1) nor Article 350(2) are fulfilled;
(b)
the higher of:
- (i)
the most recent risk number for the incremental default and migration risk calculated in accordance with Section 3;
- (ii)
the average of this number over the preceding 12 weeks.
3.
Institutions that have a correlation trading portfolio, which meets the requirements in Article 338(1) to (3), may fulfil an own funds requirement on the basis of Article 377 instead of Article 338(4), calculated as the higher of the following:
(a)
the most recent risk number for the correlation trading portfolio calculated in accordance with Section 5;
(b)
the average of this number over the preceding 12-weeks;
(c)
8 % of the own funds requirement that would, at the time of calculation of the most recent risk number referred to in point (a), be calculated in accordance with Article 338(4) for all those positions incorporated into the internal model for the correlation trading portfolio.