Recital 1

(1)Article 325bf(2) of Regulation (EU) No 575/2013 requires institutions to count daily overshootings on the basis of back-testing of the hypothetical and actual changes in their portfolio’s value composed of all the positions assigned to their trading desks. Such back-testing is intended to assess, depending on the level at which it is performed, whether it is appropriate to calculate the own funds requirements for positions in a trading desk using the alternative internal model approach, and whether the own funds requirements associated with modellable risk factors are adequate. Article 325bf(4) of Regulation (EU) No 575/2013 requires institutions to use the end-of-day value of the portfolio as a starting point for such back-testing, including all adjustments, such as reserves or any valuation adjustment.