2013 CCAR Severely Adverse Market Shocks -- Accessible Version

Using the Provided Shocks

Risk factor shocks are provided here in a format that is analogous to that of the FR Y-14Q schedule for Trading, Private Equity and Other Fair Value Assets.

It is expected that BHCs will apply these risk factor shocks to produce the profit and loss (P/L) estimates for the trading and counterparty credit (CCR), and mark-to-market (MTM) losses for FV assets not held in trading, including loans held-for-sale (HFS) or held-for-investment with the fair value option, and available-for-sale (AFS) securities.

In cases in which the specified shocks are not directly compatible with the BHC’s internal systems, the BHC is expected to interpolate or extrapolate around the given points to determine the appropriate shock. Supporting documentation should include a description of the methods used to interpolate or extrapolate.
In cases where there are nonlinearities, BHCs should not simply multiply their exposures by the corresponding shocks to arrive at a purely linear P/L estimate, but should instead use full-revaluation methods to compute their loss estimates.

For FV loans not held in trading, BHCs should apply the market value shock based on the experience during the second half of 2008. The shocks applied to retail and commercial real estate whole loans should be generally consistent with the risk factor shocks provided in the Securitized Product worksheet for relevant AAA whole loans. The corporate loan shocks should be generally consistent with the risk factor shocks provided in the Corporate Credit Advanced worksheet for Loans. If different assumptions are made, BHCs should provide supporting documentation that include the assumptions and why the assumptions used are more appropriate than those provided in the worksheet.

To estimate post-shock fair market value for “Securities Worksheet 3: Methodology and Assumptions,” BHCs should refer to relevant worksheets (e.g., Securitized Products, Agencies, Munis, Corporate Credit, and Sovereign Credit) in the Market Shock Scenario.

Using Other Shocks

If BHCs require a shock that is different from any of those provided, then firms should use historical experience from the second half of 2008 (6/30/2008 – 12/31/2008) to calculate the missing shock. Any such cases must be described thoroughly in supplemental documentation to be submitted with firm’s loss estimates.

Scenario-Specific Guidance

Adverse Scenario:

This scenario does not involve any specific shocks to the credit spreads of Eurozone dealer and non-dealer banks. Instead, the shocks provided on the Corporate Credit-Advanced Economies worksheet should be applied to all corporate credit issued by entities domiciled in Advanced Economy countries (as defined in the Regional Groupings worksheet of the Trading FR Y-14Q) regardless of industry.

Severely Adverse Scenario:

For this scenario we have provided specific shocks to be applied to the credit spreads of Eurozone dealer and non-dealer banks. Shocks are further differentiated by whether such banks are domiciled in peripheral (Greece, Ireland, Italy, Portugal, Spain) or core Eurozone countries and are provided on the Credit-Eurozone Periphery Banks and Credit-Eurozone Core Banks worksheets respectively. For the severely adverse scenario the shocks provided on the Corporate Credit-Advanced Economies worksheet should be applied to all corporate credit issued by entities, other than Eurozone dealer and non-dealer banks, which are domiciled in Advanced Economy countries (as defined in the Regional Groupings worksheet of the Trading FR Y-14Q).

Multinational entities may have debt issued by subsidiaries which are in countries other than the parent firm's country of domicile. In such cases, firms should look to the subsidiary's country in determining where to enter such credit exposures.