12.3 Standardized Approach Shocks

In addition to the six methods of IRC Forecasting there are six shocks as part of the Basel Committee IRRBB Standardized Approach:

• Parallel Up and Down
• Short Rates Up and Down
• Flattener
• Steeper

A Long Rate Shock is also applied as part of the Standardized Approach, but this is an interim, reference-only shock needed for the steeper and flattener scenarios. Additionally, scenario 1 of a Forecast Rates Rule will always serve as the base rate scenario to which these shocks will be applied.

Standardized Approach (SA) shocks are an integral part of the larger Standardized Approach for IRRBB Solution. Standardized Approach Shocks have special application and therefore are scenario-level rules in Forecast Rates and apply to a limited number of currencies as prescribed by the Basel IRRBB Publication. Appendix C “The Standardized Approach in IRRBB” contains the general framework to the solutions provided by the ALM Application. Also see the Basel Committee on Banking Supervision’s Publication “Interest Rate Risk in the Banking Book”, Annex 2 “The Standardized Interest Rate Shock scenarios” for further details and applicable usage guidance.

For applicable IRC Currencies, the rate changes represent instantaneous shocks that are held constant over the life of the forecast and are calculated. Standardized Approach Formula constants are stored in the table FSI_IRC_STDAPRCH_SHOCKS.