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  • Writer's pictureWilliam Webster

Liquidity stress testing

Yesterday I was taking part in a webinar on liquidity stress testing. I had a check list of nine points they are here: 1. Severe yet plausible: Can you justify the stresses being used? What are the core scenarios? How do they pan out and affect you? 2. Expect challenge: It's easy to convince yourself but can you convince others? 3. Use hard data: Qualitative stresses work much better with quantitative support (and vice versa). 4. Going forwards: What does your buffer look like in the future? Are there any surprises? 5. Recalibrate regularly: After all markets don’t respect annual reviews. 6. Contingency funding: What are the scenarios and what can you do? (If possible quantify). 7.Where are the pinch points? Are there particular times in the year that create problems? Do concentration risks need dilution? 8. Stress costs money: Is it in your funds transfer pricing - does affect what you do? 9. Good news: Basel III - stress horizons, will 30 days replace 3 months? One last thing. Sense checking makes sense.

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