What confidence interval applies for assessing capital adequacy as part of institutions' ICAAP?
DNB assesses the Internal Capital Adequacy Assessment Process (ICAAP) as part of the Supervisory Review and Evaluation Process (SREP). It is the consistent practice of DNB to calculate capital adequacy under the ICAAP on the basis of a 99.9% confidence interval over a one-year horizon. One of the main reasons why, in the SREP, DNB assumes recalibration of the ICAAP capital to a 99.9% confidence interval is that this interval also forms the basis for calculating the capital requirements under Pillar 1 for credit risk (see Article 153 of the Capital Requirements Regulation or CRR) and operational risk (see Article 322 of CRR). DNB recommends that institutions also use a confidence interval of at least 99.9% when calculating and assessing capital adequacy. If an institution uses a lower interval in its ICAAP, DNB may recalibrate the results based on a 99.9% confidence interval.
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