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LM-9.2.4

A bank should take a reasonably conservative approach when setting stress assumptions. There are a number of possible areas that the assumptions should cover. For illustrative purposes, these areas include, but are not limited to, the following:

(a) The run-off for retail funding;
(b) Asset market illiquidity and erosion in the value of liquid assets;
(c) The loss or impairment of secured and unsecured wholesale funding sources;
(d) The correlation between funding markets and effectiveness of diversification across available sources of funding;
(e) The availability of contingent lines extended to the banks;
(f) The availability of funding in different tenors;
(g) Contingent claims, including potential draws on committed lines extended to third parties or the bank's connected parties (such as its overseas branches, associated entities in its consolidated group, controller or head office);
(h) Liquidity drains associated with contractual obligations or non-contractual obligations involving off-balance sheet vehicles and activities, as well as complex products or transactions;
(i) Additional margin calls and collateral requirements (e.g. in derivative or other contracts with embedded trigger clauses);
(j) Estimates of future balance sheet growth;
(k) Currency convertibility and access to foreign exchange markets;
(l) The transferability of liquidity across entities, sectors and jurisdictions, taking into account legal, regulatory, operational and time zone restrictions and constraints;
(m) Access to the payment and settlement systems which are imperative to a bank.
(n) The impact of credit rating triggers;
(o) The access to central bank facilities;
(p) The operational ability of the bank to monetise assets; and
(q) The bank's remedial actions and the availability of the necessary documentation and operational expertise and experience to execute them, taking into account the potential reputational impact when executing these actions.
August 2018