Question
When calculating the supervisory outlier test, in the case of real interest rate curves, (i.e CLF, IGPM, IPCA, UVA, CER, UDI…), how should these factor risk be treated?
Background on the question
According to paragraph 115 (m) of EBA/GL/2018/02, “When calculating the aggregate EVE change for each interest rate shock scenario, institutions should add together any negative and positive changes to EVE occurring in each currency. Positive changes should be weighted by a factor of 50%.” However, the Guidelines do not specify how real interest rate sensitivities should be treated for this purposes. Therefore, several aggregation options could be considered: (i) treatment of real interest risk as an independent risk factor, whereas currencies adjusted for inflation would be assessed independently from their base currency, or (ii) in conjunction with its nominal reference curve, aggregating real interest rate curves with their base curve.
Answer
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