Liquidity Stress Testing
Framework for assessing liquidity adequacy under stressed conditions including LCR, NSFR, and survival period analysis.
Liquidity Stress Testing
Overview
Liquidity stress testing assesses an institution's ability to meet obligations and fund operations during periods of market or idiosyncratic stress.
Regulatory Requirements
LCR Stress Test
Liquidity Coverage Ratio
- 30-day stress horizon
- HQLA / Net cash outflows ≥ 100%
- Standardized outflow/inflow rates
NSFR Assessment
Net Stable Funding Ratio
- 1-year horizon
- ASF / RSF ≥ 100%
- Structural funding stability
Internal Stress Tests
- Tailored to business model
- Multiple scenarios
- Various time horizons
Stress Scenarios
Market-Wide Stress
- Credit market disruption
- Funding market freeze
- Asset price declines
- Central bank intervention limits
Idiosyncratic Stress
- Rating downgrade
- Reputational event
- Regulatory action
- Counterparty concerns
Combined Stress
- Market + idiosyncratic
- Most severe scenario
- Regulatory expectation
Stress Testing Components
Funding Outflows
| Category | Stress Rate | |----------|-------------| | Retail stable deposits | 3-5% | | Retail less stable | 10% | | Operational deposits | 25% | | Non-operational FI | 40-100% | | Secured funding | 0-25% |
Asset Monetization
- HQLA haircuts
- Non-HQLA sale discounts
- Time to liquidate
- Market capacity
Contingent Commitments
- Credit line drawdowns
- Liquidity facilities
- Derivatives collateral calls
- Trade finance
Survival Period Analysis
- Days of positive cash position
- Under various scenarios
- With/without contingent funding
- Action triggers
Contingency Funding Plan
Funding Sources
- Central bank facilities
- Committed credit lines
- Asset sales
- Liability restructuring
Triggers and Actions
| Trigger Level | Indicators | Actions | |---------------|------------|---------| | Elevated | Early warning | Enhanced monitoring | | High | Moderate stress | Activate contingencies | | Severe | Significant stress | Emergency measures |
Governance
- Clear escalation
- Decision authority
- Communication plan
- Testing requirements
Best Practices
- Frequent testing
- Scenario updates
- Management engagement
- CFP integration
- Recovery planning alignment