1.A Bank must, at a minimum, include in its stress test scenarios the impact of a 200 basis point upward and downward parallel change in interest rates in addition to other scenarios which the Bank determines are appropriate considering the risk profile, nature, size and complexity of its business and structure. A Bank, which is exposed to an economic value decline exceeding 20 percent of total capital from this standardized 200 basis point interest rate shock (or some other level determined by the Central Bank) will be required by the Central Bank to reduce its risk and/or hold additional capital.
2.Other stress scenarios which a Bank may use include, but are not limited to, more severe changes in the general level of interest rates, changes in the relationships among key market rates (basis risk), changes in the slope and shape of the yield curve (yield curve risk), changes in the liquidity of key financial markets or changes in the volatility of market rates. In addition, stress scenarios must include conditions under which key business assumptions and parameters break down. A Bank’s Internal Capital Assessment Process must address IRRBB exposures as part of Pillar 2.