Company: BCDRF
Filing Date: 2025-03-03
Form Type: 6-K
Source: 0000891478-25-000057
Chunk: 118

Company: Banco Santander, S.A.
Filing Date: 2025-03-03
Form: 6-K
Chunk 118
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-to-day risk management and decision-making, including normal market conditions, continuous pricing and adequate liquidity, although they do not fully predict extreme movements or unforeseen market turbulence.

Stress testing is an important risk management tool that identifies unexpected outcomes related to a wide range of risks, telling us how much capital would be needed to absorb losses if these unexpected events were to occur.

Stress tests play a particularly important role in: estimating future risk; overcoming the inherent constraints of models and the use of historical data; the communication of internal and external risks; supporting liquidity and capital plans; reporting the establishment of risk tolerance levels; and designing risk mitigation and contingency plans for stressed conditions.

The group's stress test programme includes the following scenarios:

• Historical Scenarios: study the behaviour of trading books under crisis conditions or significant market events relevant to portfolio positions that have occurred in the past, seeking to estimate maximum losses under the hypothesis that such events may occur again.

• Hypothetical Scenarios – Abrupt Crisis: combines movements in risk factors and their respective volatilities, based on the application of the market shocks defined in the new regulatory framework for the calculation of market risk capital requirements. For each risk factor (Interest Rates, FX, Equity, Credit and Commodities), positive and negative shocks are applied in both linear and non-linear products, identifying the most unfavourable scenarios.

• EBA adverse scenario: based on the adverse macroeconomic scenario to be applied to market risk factors, as proposed by the EBA for the "EU-wide stress test 2023" exercise.

• Forward-looking scenario: a plausible scenario defined by the Market Risk functions, based on the portfolio positions and their expert judgement regarding short-term changes in market variables that can have a negative impact on such positions.

Other quarterly scenarios:

• Reverse Stress Test Scenarios: exercise that seeks to identify those market scenarios that, affecting positions in trading portfolios, may jeopardize the viability of the institution. For this purpose, the official capital requirements calculated according to the regulation in force at the time of calculation will be considered.

• IRC Scenarios: designed to stress the default risk and rating migration risk of credit positions in the trading portfolio, with a view to identifying credit events that could impact regulatory capital and measure how reasonable the assumptions of the IRC model are.

• Use of Proxies Scenarios: defined to analyse what impact incorrect estimates of proxies could have on determining the time horizons used to calculate VaR.

• Valuation Adjustments Stress scenario: aims to estimate the potential increase in valuation adjustments of fair valued