1. For the purposes of this Article:
(a) 'General Wrong-Way risk' arises when the likelihood of default by counterparties is positively correlated with general market risk factors;
(b) 'Specific Wrong-Way risk' arises when future exposure to a specific counterparty is positively correlated with the counterparty's PD due to the nature of the transactions with the counterparty. An institution shall be considered to be exposed to Specific Wrong-Way risk if the future exposure to a specific counterparty is expected to be high when the counterparty's probability of a default is also high.
3. In order to identify General Wrong-Way risk, an institution shall design stress testing and scenario analyses to stress risk factors that are adversely related to counterparty credit worthiness. Such testing shall address the possibility of severe shocks occurring wh…