Systemwide Liquidity Stress Testing Tool

IMF Working Papers, December 16, 2022

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Developing a systemic liquidity stress testing tool is challenging due to data constraints and hard-to-model behavioral factors.
There has yet to be a uniformly accepted model partly because the nature of systemic liquidity risks differs significantly across countries.
This paper offers a simple Excel-based tool to assess the high-level impact of aggregate liquidity stress on the whole economy and gauge its spillover across banks, non-bank financial institutions (NBFIs), and non-financial economic sectors.
It primarily uses the balance sheet approach (BSA) data—a sector-aggregate matrix of financial exposure by counterpart—that have become increasingly available for various economies with all income levels.
The results can identify systemically important financial linkages to be analyzed further and help calibrate macroprudential measures and a liquidity support framework.
When liquidity stress stems from capital outflows, the tool can enrich policy discussion based on integrated policy framework (IPF) and international reserve adequacy perspectives.

Primary methodological foundation: balance sheet approach (BSA) data (sector-aggregate matrix of financial exposure by counterpart).
Tool format: simple Excel-based implementation for high-level assessment.
Scope: whole economy—banks, NBFIs, and non-financial economic sectors.
Applicable across economies with all income levels given growing availability of BSA data.

The tool assesses aggregate liquidity stress impacts and the spillover across financial and non-financial sectors.
Results can identify systemically important financial linkages for deeper analysis.
Outputs can help calibrate macroprudential measures and design a liquidity support framework.
For liquidity stress driven by capital outflows, the tool informs policy discussions under the integrated policy framework (IPF) and international reserve adequacy assessments.

Use the tool to:
- Identify systemically important linkages requiring targeted analysis.
- Calibrate macroprudential measures based on identified vulnerabilities.
- Design or refine a liquidity support framework informed by stress scenarios.
- Enrich integrated policy framework (IPF) deliberations and international reserve adequacy perspectives when capital outflows cause liquidity stress.

Subjects: Asset and liability management; Central banks; Financial sector policy and analysis; Foreign exchange; International reserves; Liquidity; Liquidity stress testing; Stress testing.
Keywords: balance sheet approach; capital flow; cashflow liquidity stress test; central bank FX liquidity buffer; central bank liquidity provision; financial stability; Global; integrated policy framework; interconnectedness; international reserve adequacy; International reserves; Liquidity; Liquidity stress testing; liquidity support framework; macroprudential policy; NBFIs; stress test; Stress testing; Systemic liquidity; systemwide liquidity risk.