As I have just illustrated, traditional tools for monitoring liquidity risk, while necessary, proved to be insufficient in the run-up to the crisis. The task of a liquidity risk supervisor is therefore not simple. The approach taken at the BCL strives to integrate the multiple facets of liquidity risk. However, to avoid the temptation to “look at everything”, the BCL approach is risk based.
Certain caps and floors in the stress test methodology may compromise the realism of the stress test outcome.