Stress Testing
LM-2.1.5
Licensees are encouraged to carry out stress testing to assess the resilience of their financial resources to any identified areas of material liquidity risk. This stress testing may take into account the general characteristics, andlicensee's experience, and any mitigating factors that it considers relevant such as the ability to sell assets quickly and the options available to re-schedule the payment of liabilities.January 2014LM-2.1.6
Where the
licensee considers that the nature of its assets or liabilities and the matching of its liabilities result in no significant liquidity risk exposure, it will not be expected to carry out stress testing. The CBB will expect it to document the reasons for its decision and be prepared to discuss these during an on-site visit.January 2014LM-2.1.7
When assessing liquidity risk, the
licensee should consider the extent of mismatch between assets and liabilities and the amount of assets held in highly liquid, marketable forms should unexpected cash flows lead to a liquidity problem. The price concession of liquidating assets is a prime concern when assessing such liquidity risk and should be built into any assessment of liquidity risk management.January 2014
