Focus
Liquidity crises can unfold very quickly, as the bank failures of 2023 in the United States and Europe showed. Yet the tools for assessing banks’ liquidity resilience in a comparable way across banks and countries remain limited. Supervisory stress tests rely on confidential data and are rarely published. Public Liquidity Coverage Ratio (LCR) disclosures are mostly limited to large banks, go back only to the mid-2010s and give a single regulatory ratio rather than a picture of how banks would cope with shocks of increasing severity.
Contribution
We present a freely available, ready-to-run toolkit for top-down liquidity stress tests covering nearly 13,000 commercial banks in more than 100 economies, over a period that includes the Great Financial Crisis. The toolkit applies three nested stress scenarios, broadly calibrated to the Basel III LCR, to public balance sheet data. It summarises the results in one number, the break-even stress factor: how much more severe than the baseline scenario a shock must be before a bank runs out of liquidity. Interactive modules let users compare banks and banking systems over time and design their own scenarios.
Findings
Bank liquidity buffers have generally strengthened since Basel III was introduced, and the weakest 10% of banks globally would now withstand an adverse liquidity scenario. However, our analysis identifies substantial cross-country and cross-bank heterogeneity in liquidity resilience, alongside a persistent ranking of banking systems over time. The toolkit’s central indicator – the break-even stress factor, defined as the minimum shock intensity at which a bank’s net liquidity becomes negative – provides a practical measure of resilience under different scenarios. The results also highlight the challenges posed by rising deposit run-off rates in an increasingly digitalised financial system and by growing linkages with non-bank financial intermediaries. These developments underscore the importance of complementing regulatory disclosures and supervisory stress tests with timely, granular and accessible liquidity risk assessments.
Abstract
Liquidity risk remains a persistent threat to financial stability, as starkly demonstrated by the 2023 banking turmoil in the United States and Europe. Hence, the ability to quickly gauge banks’ liquidity risks could prove useful especially during periods of market stress, but also to assess differences in liquidity buffers across peer economies and banks. Yet, publicly available information on banks’ liquidity resilience is patchy: regulatory disclosures are limited in coverage and history, and supervisory liquidity stress tests are typically run by authorities using confidential data. To help fill this gap, our paper introduces a freely available, interactive liquidity stress-testing toolkit 2 for assessing Basel III liquidity coverage ratio-type shocks at the bank and economy level. It covers nearly 13,000 commercial banks across more than 100 economies since 2006, and incorporates pre-calibrated benchmark scenarios, pre-run simulations, and user-defined scenario options. An innovative “breakeven stress factor”—the minimum shock intensity at which a bank’s net liquidity turns negative—is the central output metric. Using the tool, we find meaningful cross-country heterogeneity in liquidity resilience and persistent rank ordering over time. We also discuss how rising run-off rates in a digitalised world and growing NBFI linkages challenge existing frameworks.
