The Relationship between Liquidity Risk and Credit Risk in The CNB's Liquidity Stress Tests

Zlatuse Komarkova (), Marek Rusnák and Hana Hejlová

Chapter Thematic Article 2 in CNB Financial Stability Report 2015/2016, 2016, pp 127-136 from Czech National Bank, Research and Statistics Department

Abstract: This article describes an extension to the bank liquidity stress test methodology used by the CNB. The new test has been lengthened to a one-year stress period. Shocks are generated using the CNB's macro-stress scenario and bank solvency macro-stress test results. The test concept is based on the principles of the European LCR and NSFR liquidity standards. By changing its liquidity test methodology the CNB is responding to the need to incorporate the impact of credit risk into the liquidity position of Czech banks and to monitor their liquidity position over a longer stress period. The presented methodology is then applied to a sample of Czech banks. This allows us to monitor the sensitivity of their liquidity position to the combination of shocks under consideration.

Date: 2016
ISBN: 978-80-87225-65-3
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