Capital Markets Examiner School, Providence, RI

LIQUIDITY EXERCISE

Liquidity Stress Testing – Process

 Does the bank have a structured approach to building assumptions and scenarios?  As an example:

1) Identify baseline cashflows 2) Determine useful events 3) Derive cashflows for each scenario 1) Clearly differentiate drivers 1) Non-discretionary/contractual

2) Customer behavior 3) Management driven 4) Blend into CFP – what do they cover the gaps with 1) Be aware of facilities that can disappear.  Is adequate detail available for reviewers and regulators to understand how the scenarios and assumptions translate into outcomes?  Who reviews and approves scenarios and how much information do these individuals have in this process?