4.5.1 Perimeter of CSRBB

120. CSRBB captures a combination of two elements:

(a) The changes of the "market credit spread" or "market price of credit risk" (distinct from the idiosyncratic credit spread) [Idiosyncratic credit spread reflects the specific credit risk associated with the credit quality of the individual borrower (which will also reflect assessments of risks arising from the sector and geographical location of the borrower) and the specifics of the credit instrument (e.g., whether a bond or a derivative).] representing the credit risk premium required by market participants for a given credit quality [For instance, the additional yield that a debt instrument issued by an AA-rated entity must produce over a risk-free alternative.];

(b) The changes of the "market liquidity spread" representing the liquidity premium that sparks market appetite for investments and presence of willing buyers and sellers;

121. CSRBB does not include the effect of credit quality changes during the observation period (i.e., rating category downgrade/upgrade of a specific counterparty or instrument, considered as migration risk). In particular, the deterioration of an institution’s credit quality should not have any positive impact on the credit spread risk measure. Institutions should avoid any overlap with the credit valuation adjustment risk management framework when assessing the CSRBB.

122. CSRBB excludes non-performing exposures.