Liquidity Stress Testing 💧 How banks prepare for crises. #Banking #Liquidity #Risk
14 April 2026·1 min
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Welcome to this session from the Industry Portal liquidity management course, where we explore one of the most critical tools in banking resilience: liquidity stress testing.
While contingency funding plans define how banks respond to crises, stress testing determines what they prepare for in the first place.
In this video, we break down how banks design stress scenarios, select assumptions, model outcomes, and use results to drive real world decisions. You will learn how shocks such as deposit runs, funding market closures, collateral calls, and market dislocation are translated into impacts on cash flows, liquidity buffers, and survival horizons.
We explore different types of stress scenarios, including idiosyncratic, market wide, and combined stress, and explain how banks balance severity with realism using historical data, forward looking judgement, and regulatory input.
A key focus is behavioural assumptions, including deposit withdrawals, credit line usage, wholesale funding roll off, and asset liquidity. You will understand how these assumptions drive outcomes and why governance and regular review are essential.
The session also covers how stress testing models work in practice, including daily cash flow projections, buffer usage, and survival horizon analysis, alongside impacts on metrics such as LCR and NSFR across currencies and entities.
We explain how stress testing feeds into decision making, from setting liquidity risk appetite and buffer levels to shaping funding strategies and contingency actions. The link to ILAAP and CFP frameworks is also explored, showing how these elements work together.
From a governance perspective, we cover model oversight, validation, senior management engagement, and emerging practices such as reverse stress testing and near real time monitoring.
By the end of this session, you will understand why liquidity stress testing sits at the heart of effective liquidity risk management — connecting modelling, judgement, and strategy.
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Subscribe for the full liquidity management course.
#LiquidityRisk #StressTesting #Banking #Finance #Treasury #RiskManagement #LCR #NSFR #ILAAP #TheIndustryPortal
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