Our validations encompass a comprehensive review of the entire liquidity stress testing framework, including:
Scenario Design and Thematic Coverage
We evaluate the structure and relevance of stress scenarios to ensure a balanced, thematic approach - covering both market-wide disruptions (e.g., systemic events) and institution-specific scenarios (e.g., reputational risk, credit rating downgrades). We assess the severity, duration, and rationales for each scenario, and ensure they reflect evolving risk environments.
Time Horizon, Bucketing, and Liquidity Gaps
We review the timing of stress assumptions and the use of maturity buckets across near-, medium-, and long-term horizons to ensure appropriate liquidity gap analysis. This includes assessing how cash flows, funding availability, and contingent liabilities are distributed and modeled over time.
Key Behavioral and Funding Assumptions
Our review includes:
Deposit outflow rates segmented by depositor type, account characteristics, and relationship depth
Loan drawdowns and credit line utilization
Cash inflows/outflows under stress
Haircuts on liquid asset buffers
Availability of funding sources, distinguishing between secured vs. unsecured funding, as well as reliance on wholesale, brokered, and central bank lines
Deposit Granularity and Relationship Analysis
We assess the granularity of deposit modeling, including segmentation by customer type (retail, commercial, public funds), behavioral characteristics, and customer relationship strength - factors critical for estimating stress outflows realistically.
Validation of Funding Access
We ensure that contingent funding lines are periodically tested, with operational readiness confirmed and appropriately documented. This includes assessing the documentation and monitoring of collateral availability and eligibility.
Governance, Policy Alignment & Documentation
We review all related documentation, including the Contingency Funding Plan, liquidity stress testing policies, and model governance frameworks. This ensures alignment between policy intent, model implementation, and board-level reporting.
Model Types and Platforms
We work with a wide range of liquidity stress testing models, including, but not limited to:
Excel-based models
Vendor models such as Empyrean, Moody’s ZM, Bancware and ProfitStar
In-house built projection engines
