1. Interest rate shock scenarios and shock sizes

The six interest rate shock scenarios for measuring EVE under the standard EVE outlier test are:

(i) parallel shock up;

(ii) parallel shock down;

(iii) steepener shock (short rates down and long rates up);

(iv) flattener shock (short rates up and long rates down);

(v) short rates shock up; and

(vi) short rates shock down.

Institutions should apply the six above-mentioned interest rate shock scenarios to capture parallel and non-parallel gap risks for EVE. These scenarios are applied to IRRBB exposures in each currency separately for which the institution has material positions [Material positions are defined in section 4.5, ‘Supervisory outlier test’.].

The shock size for the six interest rate shock scenarios is based on historical interest rates. More precisely, for capturing the local interest rate environment and cycle, a historical time series ranging from 2000 to 2015 [The EBA may envisage a recalibration in due course.] for various maturities is used to calculate the parallel, short-end (‘short’) and long-end (‘long’) shocks for a given currency. However, deviations from the above-mentioned 16-year period are permitted if they better reflect a particular jurisdiction’s idiosyncratic circumstances.