Reference date for determination of previous day’s values

To which day do Art. 364 1) a) i), Art. 364 1) b) i) and Art. 364 2) b) i) CRR refer to? To which days do Art. 364 1) a) ii) CRR, Art. 364 1) b) ii) and Art. 364 2) b) ii) of the CRR refer to?

Art. 364 CRR defines which values shall be used to calculate the own funds requirements for market risk under the interal model approach. Besides average values, specific days are named: Art. 364 1) a) i): “its previous day's value-at-risk number calculated in accordance with Article 365(1) (VaR t-1);” Art. 364 1) b) i): “its latest available stressed-value-at-risk number calculated in accordance with Article 365(2) (sVaR t-1).” Art. 364 2) b) i): “the most recent risk number for the incremental default and migration risk calculated in accordance with Section 3;” According to our understanding of Art. 364 CRR, the previous day’s value is compared to the average value of the preceding sixty business days multiplied by the multiplication factors. The higher of these values is then used to compute the own funds requirements. Institutions deliver back-testing time series on a quarterly basis, which contain e. g. value-at-risk numbers, stressed-value-at-risk numbers and risk numbers for incremental default and migration risk. With these values the average values as well as the previous day’s values can be reconciled. The reconciliation between these time series and the values reported via COREP C24.00 identified a matter of definition for t-1 in Previous day (VaR t-1) as well as latest available (SVaR t-1). Art. 364 CRR names the previous day’s value as VaR t-1. Assuming that t equals the last day of the respective quarter as the reporting date, t-1 should be the business day before the last day of the quarter (e. g. t=30.6; t-1=29.6.). Then the average of the daily value-at-risk numbers from Art. 364 1) a) ii) CRR relates to dates from t-1 to t-61. The reference day for the COREP C24.00 reporting is the quarter end. Defining the quarter end as t, t-1 should be the day before (e. g. t=30.06. and t-1=29.06.). Reconciliation of COREP and backtesting data for some institutions showed that there is no common understanding of t-1 (e.g. some use 29.6. and others 30.6. as t-1). From an economic point of view, it could be more useful to apply the last day of the quarter as reference day, i.e. t in the notation above, so that the VaR is based on the portfolio of the reporting day. At the point in time when the own funds requirements are calculated, all back-testing values are available (quarter end and the business day before (previous day’s value)).