Bearing · Cycle 1 — Reverse stress test (2026 ICAAP §4.2)

01 / Prescribed failure

The supervisor sets the depletion outcome.
The instrument reads the path backwards.

Reverse anchor
read up the spine

Prescribed CET1 depletion · archetype

~300bp^{supervisor-prescribed}

StatusPrescribed input

ProvenanceSupervisor, ICAAP §4.2

Bearing claim?No · not a Bearing read · not computed

A reverse stress test starts from the failure and reads backwards to the configuration that gets there.

The ~300bp number is an archetype: the supervisor's given, not a Bearing computation. The instrument's question is not how much — it is through what plausible configuration of the world a book like this one arrives at a depletion of that order, and through which transmission channels in this bank's specific exposure surface.

That re-framing is the whole point. A measurement grid would invite a recomputation. A reverse spine invites a self-diagnosis.

↓Read down the spine·Configuration → channels → triggers → branches

02 / Entangled configuration

One coherent system, not five signals.

Plausible path
load-bearing mechanism named

Configuration·Iran/US — Hormuz — Russia/Ukraine — Xi/Trump — Turkey

CFG-01 · entangled · single configuration

Load-bearing
mechanism

Russia's war-economy incentive sustains Hormuz disruption beyond what an Iran/US bilateral would resolve. China's stated Iran-resolution preference modulates the intensity but does not cancel it. Turkey and the Eastern Mediterranean move opportunistically under cover of the primary disruption. The EU auto-tariff vector sits structurally adjacent, dormant pending DG TRADE gazette.

The configuration is a system, not a list. The instrument refuses to enumerate five separate signals each with a separate stress, because the credible depletion path is one where they hang together, mutually reinforcing.

That is the spec's first commitment: one coherent system named on the surface, with one load-bearing mechanism that a reader can either accept or argue with. The four channels below are how that system transmits, in this bank's specific book, to the prescribed CET1 outcome.

03 / Overview grid

Navigation. Not measurement.

Coordinates only
zero magnitudes in any cell

Structural constraint This grid is the map and carries no magnitudes by design, so depth appears as a category word and never as a σ, a p-value, or any recomputable cell. Each row drills into §04 Channels for the depth-appropriate evidence.

Configuration	Instantiation depth · per channel	Trigger state · as-of	Branches (illustrative)
Iran / US — Hormuz — Russia / Ukraine — Xi / Trump — Turkey CFG-01 · entangled · single configuration	Mechanism + precedent Sovereign-bank nexus Measured Hormuz · corporate-book Mechanism + analogue Funding pipeline Dormant · precedent only EU auto-tariff vector	Active as-of 16 May 2026 · 09:00 CET Sovereign-spread state: observable, not yet instrumented. Funding-spread state: observable. EU auto-tariff: dormant-pre-gazette (DG TRADE, 14 Mar 2026).	Persists De-escalates Widens §06 · illustrative — not exhaustive, not probability-weighted

Grid scales: bank × configuration as the deliverable grows no σ-column no p-column no recomputable cell

04 / Four channels

Four channels. Four honest depths.

Heterogeneity made legible
not flattened to look equivalent

Each channel below is rendered at its own depth. One channel is measured (Bearing holds both configuration and live instrument). Three are mechanism-and-precedent grounded. One of those three is dormant pending a regulatory gazette. A reader should be able to tell, at a glance, which channel is which — that legibility is the deliverable's defensibility.

CH·01

Sovereign–bank nexus

Mechanism + precedent + trigger

Mechanism

Sovereign stress transmits into bank credit through home-bias holdings.

Acharya, Drechsler & Schnabl (2014) describe the transmission shape directly: a 10% widening of sovereign CDS associates with ≈0.9% widening in bank CDS (peer-reviewed level reading, not a stress σ). The channel sits on top of a ~1/6 RWA sovereign-bond share and ~69% home-bias.

Acharya et al. 2014 · transmission level · home-bias channel [corpus]

Precedent (depletion shape)

Ireland, 30 September 2008 — overnight bank-guarantee, sovereign re-rating.

Bank CDS 400 → 150 bp overnight on the guarantee; sovereign CDS quadrupled to 400 bp within six months. That is the depletion shape the prescribed-failure number resembles, not a magnitude Bearing derives.

Irish guarantee precedent [corpus]

Trigger

Sovereign-spread state — observable, not yet instrumented in this channel.

The trigger this channel watches is the bank-relevant sovereign-spread state. No σ is asserted here, because the live instrument that would justify a σ does not exist for this channel in this cycle. The honesty of saying so is the depth.

Watch · sovereign-spread state [corpus]

CH·02

Hormuz · corporate-book

Measured · the one instrumented channel

Corporate-book leg · focal

Italian industrial NPL migration, energy-intensive sectors

σ

2.10

p

< .008

Credit-risk σ. Derivation: 2022 RU–EU gas NPL migration +3.6pp ÷ ECB SSM baseline NPL volatility 1.71 pp/σ = 2.10.

[corpus] [reconstructed] σ-unit reconstructed

Sovereign-book leg

NIM-beneficiary cluster, escalation phase

σ

1.14

p

.032

Independently re-derived. Reported here as the second leg of the one channel where Bearing holds both configuration and live instrument.

[corpus]

Why this channel is measured

The 2022 Russia–Europe gas crisis / Italian industrial NPL migration cycle is Bearing's empirical anchor for the configuration class. The corpus-substrate + live signal coverage is sufficient to instrument this channel directly, in σ. The other three channels in this configuration are not.

Discipline

Show the measurement. Do not invent equivalent figures for the other channels. The measured leg's defensibility comes from the corpus + derivation visible above; the other channels' defensibility comes from mechanism + precedent, deliberately not dressed up to look quantitative.

Surface to ICAAP

The Hormuz figures travel into the appendix in the data/mono register; the mechanism-and-precedent channels travel in prose. The supervisor's quant team should be able to recompute the σ-derivation directly from the line shown.

CH·03

Funding pipeline

Mechanism + analogue + trigger

Mechanism

Wholesale Euribor channel — funding-spread widening passes through into corporate-loan repricing.

The pipeline carries shocks from senior-unsecured issuance and the repo book into the bank's spread book. It sits structurally adjacent to the Hormuz channel but transmits along a distinct path.

Euribor-channel transmission [corpus]

Analogue · 2022 Q4 inflation-shock cycle

+26 bp net-capture — the analogue's calibrated magnitude.

The 2022 Q4 funding-shock cycle is the empirical analogue. +26 bp net-capture is reported here as that episode's calibrated magnitude — a corpus reading, not a forecast for cycle 1. The reader's question is whether this configuration looks structurally similar, not whether 26 bp will recur.

2022 Q4 cycle [corpus]

Trigger

Funding-spread state — observable.

The trigger this channel watches is funding-spread state movement against the 2022 analogue's transition. No σ is asserted in this cycle; the channel is mechanism-and-analogue-grounded by design.

Watch · funding-spread state [corpus]

CH·04

EU auto-tariff vector

Dormant · structural precedent only

Structural precedent

2018–19 US–EU steel and aluminium tariff cycle.

The auto-parts supply-chain cascade follows the structural pattern of the 2018–19 cycle: German OEM Italian sub-contractors, capital-equipment exporters, precision-parts. The precedent supplies the shape of the cascade, not its magnitude in this cycle.

2018–19 steel/aluminium cycle [reconstructed]

Status — explicitly dormant

Pending DG TRADE gazette.

DG TRADE's 14 March 2026 counter-measure instrument is in 30-day consultation; not gazetted. The channel does not activate without the gazette. This row is shown dormant on purpose — no amber styling, no implication of activity.

DG TRADE · 14 Mar 2026 · 30-day consultation [corpus]

Trigger

Gazette confirmation.

The single trigger is publication of the gazetted instrument. Until then the channel sits at dormant-pre-gazette, carried in the overview grid honestly and never visually elevated.

Watch · DG TRADE gazette [corpus]

05 / Triggers

The detection apparatus — which way the configuration is resolving.

Live as-of 16 May 2026 · 09:00 CET
state, not score

Trigger map·per channel · current state

As-of timestamps explicit · dormant honestly styled dormant

Sovereign-spread state — bank-relevant series

Watched for: step-widening relative to 2022 trough; concurrence with the Hormuz signal. The mechanism above is what makes this watchable; Bearing does not assert the σ here, only the watch.

Pre-activation·as-of 16 May 2026 · 09:00 CET·[corpus]

Hormuz · live instrument

Watched for: transition out of the measured σ-state on either leg. This is the one channel where the apparatus is instrumented, not declared.

Active·as-of 16 May 2026 · 09:00 CET·[corpus][reconstructed]

Funding-spread state — wholesale Euribor channel

Watched for: step-change against the 2022 Q4 transition. The +26 bp analogue is the calibration line; the live state is observable above the line.

Pre-activation·as-of 16 May 2026 · 09:00 CET·[corpus]

DG TRADE gazette — EU auto-tariff vector

Watched for: publication of the gazetted instrument. Until then the row stays dormant; activation is a binary state, not a continuum.

Dormant · pre-gazette·as-of 16 May 2026 · 09:00 CET·[corpus]

06 / What-if

The thinking space — A illustrative · B method.

First-class layer
A/B seam drawn on the surface

A

Illustrative grounded branches off the entangled configuration — how Bearing reads it resolving.

Bearing-authored
three branches · cycle 1

Persists

A · 01

Transition condition

Russia's war-economy incentive holds; Hormuz disruption stays in its current band; China continues to state a resolution preference without acting on it.

Channels moved

Hormuz corporate-book stays at the measured σ. Sovereign-bank nexus pre-activation deepens. Funding-pipeline transmission begins to track the 2022 Q4 analogue.

Observable counterfactual

Funding-spread state crosses the 2022 Q4 transition without a moderating headline from Beijing or Tehran inside 30 days.

Illustrative not exhaustive not probability-weighted

De-escalates

A · 02

Transition condition

A US–Iran channel narrows the Hormuz disruption band; China moves from stating a preference to acting on it; Russia's incentive curve does not break, but the locus shifts.

Channels moved

Hormuz corporate-book σ-state transitions toward de-escalation; sovereign-spread state stops widening; funding pipeline does not cross the 2022 transition.

Observable counterfactual

Hormuz live-instrument leg de-escalates without the EU auto-tariff vector being gazetted in the same window.

Illustrative not exhaustive not probability-weighted

Widens

A · 03

Transition condition

Hormuz disruption deepens; the DG TRADE auto-tariff gazette publishes inside the cycle; Turkey moves opportunistically in the Eastern Mediterranean under cover.

Channels moved

All four channels move concurrently. Hormuz σ-state escalates; sovereign-spread state widens with home-bias amplification; funding pipeline crosses; EU auto-tariff activates from dormant.

Observable counterfactual

DG TRADE gazette publishes within the cycle and the Hormuz live-instrument does not de-escalate inside the same window.

Illustrative not exhaustive not probability-weighted

A/B
seam

A is how Bearing reads this resolving — illustrative. What follows is the method to read it against your book — yours to run. The branches above are worked examples; the procedure below is the engine the bank operates on its own exposures.

end · A
begin · B

B

The branch-construction method — the engine the bank runs.

Bank-executed
five steps · per branch

B · 01

Identify a transition condition

Name a specific, observable change in the configuration — a step in one of the load-bearing relationships above. Not a vibe. A condition that could be true or false on a date.

Runs at: configuration layer

B · 02

Trace through the channels

Walk the condition through each of the four channels at its depth. Measured channel: read the instrument. Mechanism + precedent: read the mechanism, name the analogue. Dormant: state whether the trigger is met.

Runs at: channel layer

B · 03

Name the observable counterfactual

For the branch to be wrong, what would have to be true? State the counterfactual in the form of an observation that could be made on a future date — not a prediction.

Runs at: trigger layer

B · 04

Test against your own exposures

Run the traced channel reads against your actual exposure data — energy-intensive corporate book, sovereign book composition, funding pipeline mix, auto-parts / capital-goods cluster. This is yours; Bearing does not see it.

Runs at: bank book · bank-side

B · 05

Self-diagnose against CET1 mechanics

Close each channel to a capital number using your CET1 mechanics, the bank aggregates the channel impacts to a depletion estimate and sets it against the prescribed outcome. The gap that remains is where the diagnosis lives rather than a verdict the instrument hands down.

Runs at: ICAAP capital layer · bank-side

Engine operator The bank · executed against your book · against your CET1 mechanics · against your RDA lineage

07 / Boundary

The Bearing / bank boundary, on the surface.

Cannot-be-wrong posture
made visible, not implied

Bearing delivers

What sits this side of the boundary.

ConfigurationThe entangled system, named with its load-bearing mechanism.
Channel mechanicsFour channels at four honest depths — the heterogeneity, not a flattening.
Branches (A)The illustrative grounded branches — labelled illustrative, not probability-weighted.
Method (B)The procedure the bank executes — five steps, drawn on the surface, no black box.
Hormuz σThe one channel where Bearing holds both configuration and live instrument. Measured values surfaced with their derivation.

The bank delivers

What sits the other side.

Exposure dataEnergy-intensive corporate, sovereign composition, funding mix, auto-parts / capital-goods cluster — all bank-side.
CET1 mechanicsThe closures from channel read to capital number. Bearing does not compute these on your behalf.
RDA lineageThe risk-data-aggregation lineage the SREP grades, against this bank's own dimensions.
Self-diagnosisThe reading of the branches and method against this bank's book — the verdict, if there is one, is bank-side.
JudgmentThe instrument surfaces the configuration and the channels; the decision stays with the principal who reads it.

JST sufficiency
caveat · on-surface

ICAAP sufficiency is a supervisor (JST) bilateral determination, bank-by-bank. This instrument does not imply pre-validated compliance, does not bind the JST, and does not substitute for the bank's own ICAAP narrative. It is a structured space for the bank to reason about its own failure pathways and self-diagnose against its own book.

Bearing Cycle 1 · Italian SSM · ICAAP §4.2

Reverse stress test,
cycle 1. A thinking instrument for the supervisor-prescribed depletion, read backwards through one entangled configuration.

The supervisor sets the depletion outcome.
The instrument reads the path backwards.

One coherent system, not five signals.

Navigation. Not measurement.

Four channels. Four honest depths.

Sovereign–bank nexus

Hormuz · corporate-book

Funding pipeline

EU auto-tariff vector

The detection apparatus — which way the configuration is resolving.

The thinking space — A illustrative · B method.

Illustrative grounded branches off the entangled configuration — how Bearing reads it resolving.

The branch-construction method — the engine the bank runs.

The Bearing / bank boundary, on the surface.

What sits this side of the boundary.

What sits the other side.

Bearing Cycle 1 · Italian SSM · ICAAP §4.2

Reverse stress test, cycle 1. A thinking instrument for the supervisor-prescribed depletion, read backwards through one entangled configuration.

The supervisor sets the depletion outcome.The instrument reads the path backwards.

One coherent system, not five signals.

Navigation. Not measurement.

Four channels. Four honest depths.

The detection apparatus — which way the configuration is resolving.

The thinking space — A illustrative · B method.

The Bearing / bank boundary, on the surface.

What sits this side of the boundary.

What sits the other side.

Reverse stress test,
cycle 1. A thinking instrument for the supervisor-prescribed depletion, read backwards through one entangled configuration.

The supervisor sets the depletion outcome.
The instrument reads the path backwards.