Stress testing liquidity risks
Timely and comprehensive stress tests covering all relevant risk factors allow for the prompt
identification of key risk drivers in each institution, thereby enabling early intervention to
prevent identified weaknesses from developing into a larger threat to safety and soundness.
The Bundesbank has made commendable efforts to enhance the rigor and institutional
coverage of stress testing for banks, but has yet to incorporate liquidity risks within its stress
Banks’ internal stress test framework and models are currently subjected to regular
supervisory review to ascertain their robustness. The banking supervisors also obtain internal
liquidity stress test results from selected banks to evaluate their forward-looking liquidity
However, these results are less independent, comparable and consistent than those
derived from the authorities’ own stress tests. In line with ongoing EBA work in this area, 42
the German authorities are encouraged to incorporate liquidity scenarios in their stress testing
framework and to perform their own liquidity stress tests. With the implementation of the
new liquidity reporting requirements in 2014, more granular data would be available to
facilitate the conduct of such tests.