Capital Markets Examiner School, Providence, RI

Liquidity Stress Testing

 A quantitative analysis of the stress scenarios

 Stresses are applied to the base case cash flow analysis

 Determines gaps in funding over future time horizons

Liquidity Stress Testing –Scenarios

 Are there an adequate number of events and are they severe enough?  The bank should test across the spectrum from mild to severe events.  Do the risks presented in the scenarios accurately reflect risks which are relevant to the bank?

 Once again, do the scenarios present a reasonable story or are they just an random amalgam of stresses forced onto the baseline?

 Most importantly, is there a broad, overall logical approach to developing AND maintaining assumptions and scenarios?  How often are they routinely reviewed for potential updates?