Capital Markets Examiner School, Providence, RI

Scenarios - Magnitude

 2010 Advisory on IRR

 “In many cases…plus or minus 200 basis points may not be sufficient...Institutions should regularly assess… changes of greater magnitude (e.g., up and down 300 and 400 basis points) across different tenors…”  “Institutions should ensure that their scenarios are severe but plausible in light of the existing level of rates and the interest rate cycle. For example, in low-rate environments, significant declines in market rates can be de- emphasized in favor of increasing the number and size of alternative rising- rate scenarios.”

Scenarios - Magnitude

 2012 FAQ

 “… the decision as to which stress testing scenarios are appropriate should be based on the institution’s risk profile and current economic conditions. Institutions should consider the current level of rates relative to the normal rate cycle… Therefore, during low-rate environments, institutions may increase the number of positive-rate shocks, including very large positive-rate shocks, while reducing the severity of negative rate shocks.”