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DNB updates its approach regarding Pillar II liquidity requirements for LSIs


Survival period

In the context of the SREP, DNB requires all LSI’s to maintain a survival period of six months, based on its internal stress test. DNB expects an LSI to calculate and monitor its survival period at least on a monthly basis and it should be notified by an LSI in case its survival period drops below 7 months.

Published: 06 December 2017

The survival period requirement entails that a credit institution needs to ensure it can continue operating for a minimum period of 6 months and meet all its payments due under the assumed liquidity stress scenarios. This requirement is based on the outcome of the internal stress test of the credit institution, that should capture the vulnerabilities of the specific institution. Responsive actions taken by the management are to be incorporated in the stress if applicable (“dynamic balance sheet assumption”).

The stress test and survival horizon calculations should be in line with the EBA guidelines on liquidity risk stress testing (EBA/GL/2018/04). According to these EBA guidelines, credit institutions have to apply three types of stress scenarios:

  • an idiosyncratic scenario;
  • a market-wide scenario;
  • and a combination of these two scenarios.

Credit institutions should furthermore design different time horizons in their stress testing, which should range from intraday and overnight up to at least 12 months. Credit institutions are expected to meet the 6 month survival period requirement in all three types of stress scenarios.

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