FI decides on stress test methodology for determining the capital planning buffer

FI has now decided on the stress test methodology that will be used for determining the capital planning buffer for the largest Swedish bank companies. The methodology, which is described in more detail it in a new memorandum, is based on the proposal that FI published on the 9 May.

The stress test methodology that FI has selected can be broken down into two parts, an overarching methodology, that is formally adopted in the memorandum, and the specific calibration of risk factors for individual types of risk.

The overarching methodology includes the following parts:

  • The stress test will be conducted as a scenario analysis that includes changes to a number of operational risk parameters, such as credit losses and changes in risk weights and market interest rates. An underlying macroeconomic scenario will not be used.
  • FI will calculate the outcome of the stress test based on underlying data that firms report to FI for risk types where there is good access to this kind of data. For risk types where FI has limited access to sufficiently descriptive data, the authority may request additional information from the firms or allow them to calculate the outcome of the stress test themselves.
  • FI will implement a limitation on the stress test's degree of severity by establishing that a severe but plausible stress is an event that probably will occur at least three times per century but not more than ten times per century.
  • The stress test will assume that the balance sheet is static.

The specific calibration of risk factors will not be formally adopted, but rather can change on a year-by-year basis. Ten firms are currently considered to belong the group of the largest companies.

FI will carry out the stress test as part of its Supervisory Review and Evaluation Process (SREP), starting in 2016. The test will normally be carried out on an annual basis. FI will publish its determination of the size of the capital planning buffer as part of its quarterly publication of the firms' capital needs. FI will publish ex-post the specific calibration of risk factors that was applied.

Read more

Laddar sidan