(16)Institutions are required to back-test their internal models daily to assess whether those models generate sufficient capital requirements to absorb trading book losses. Failures in the back-testing requirement, also known as overshootings, if above a certain number per year, would result in an additional quantitative multiplier being applied to the own funds requirements for market risk calculated using internal models. The back-testing requirement is highly procyclical in a period of extreme volatility, such as the one caused by the COVID-19 pandemic. As a result of the crisis, the quantitative market risk multiplier applied to internal models has increased significantly. While the Basel III framework for market risk allows competent authorities to smoothen such extraordinary events in market risk internal models, such supervisory discretion is not fully available under Regulation (EU) No 575/2013. Therefore, additional flexibility for competent authorities to mitigate the negative effects of the extreme market volatility observed during the COVID-19 pandemic should be introduced to exclude the overshootings that occurred between 1 January 2020 and 31 December 2021 which are not a result of deficiencies in internal models. Based on the experience from the COVID-19 pandemic, the Commission should assess whether such flexibility should be made available also during future episodes of extreme market volatility.