4.4.1 General requirements

47. Stress tests should take into account all types of material risk having regard to both the on- and off-balance-sheet assets and liabilities of an institution including relevant structured entities.

48. Stress tests should capture risks at various levels in an institution. In this regard, according to the proportionality principle, the scope of stress testing may vary from simple portfolio level sensitivity or individual risk level analyses to comprehensive institution-wide scenario stress testing.

49. Stress tests should take into account changes in correlations between risk types and risk factors, at individual entity and at a group-wide level. They should also take into account that correlations tend to increase during times of economic or financial distress and that case-by-case analyses of how certain correlations behave in certain scenarios are required.

4.4.2 Portfolio and individual risk level stress testing

50. Institutions should perform stress tests on an individual portfolio basis, covering all risk types that affect these portfolios, using both sensitivity and scenario analyses. Institutions should also identify risk factors and their adequate level of stress, wherever possible, at the level of an individual portfolio.

51. Institutions should ensure that they stress test portfolios and business lines or units to identify intra- and inter-risk concentrations – i.e. concentrations of common risk factors within and across risk types (including contagion effects).