On 6 February 2019, the European Central Bank (ECB) launched a sensitivity analysis of liquidity risk to assess the ability of the banks it directly supervises to handle idiosyncratic liquidity shocks.
The exercise will constitute the supervisory stress test of 2019. ECB banking supervision is required to organise annual supervisory stress tests under Article 100 of the Capital Requirements Directive IV and will conduct such an exercise for banks under its direct supervision in 2019.
The ECB notes that whilst liquidity has been abundant in the euro area in recent years, it has witnessed individual cases of constrained liquidity and it needs to test whether banks are ready to handle similar situations.
The results of the exercise will feed into the ECB’s ongoing supervisory assessments of banks’ liquidity risk management frameworks, including the Supervisory Review and Evaluation Process. However, the outcome of the stress test will not affect supervisory capital and liquidity requirements in a mechanical way.
ECB banking supervision will perform in-depth analyses of certain aspects of banks’ liquidity management, for instance the ability to mobilise collateral and the exposure to liquidity mismatches in individual currencies.