General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
October 31, 2017

IMF published a working paper that outlines a framework to perform liquidity stress tests for investment funds. The paper discusses practical aspects related to the calibration of the redemption shock, the measurement of liquidity buffers, and the assessment of resilience of investment funds. The integration of liquidity stress tests with banking sector stress tests and possible bank-fund inter-linkages are also covered.

In the banking sector, solvency and liquidity stress tests have been performed for a long time and regulators have provided the industry with guidance. However, in the fund industry, there has been little guidance on how to perform liquidity stress tests. The paper aims to fill this gap by providing a framework for liquidity stress testing for funds that could be used by regulators or market participants. The working paper presents the method used to perform liquidity stress tests; provides some outcome of the liquidity stress tests for a sample of bond funds; and discusses the related policy implications.

The paper notes that the objective of the liquidity stress test is to assess the resilience of investment funds—at the individual level or at the industry level—to severe, but plausible, redemption shocks. The approach is flexible enough to cope with different methodological assumptions and different degrees of data availability. The framework focuses on the resilience of individual funds or group of funds. Further efforts are needed to integrate the current framework in financial stability analyses. The future work could focus on the design of stress tests for funds, along the lines of modeling joint liquidity and market shocks; on considering the absorbing capacity of markets; and including fire sales. Additional work on data gaps is also warranted, in particular regarding bank-fund inter-linkages. Finally, more exploratory work on integrating further bank-fund inter-linkages would be required to perform system-wide stress tests, as recently recommended by FSB.

 

Related Link: Working Paper (PDF)

Keywords: International, Banking, Liquidity Stress Testing, Investment Funds, Working Paper, IMF

Related Insights
News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News
News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News
News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
News

FASB Issues Q&A on Estimating Credit Loss Reserves

FASB issued a question-and-answer (Q&A) document that addresses particular issues related to the weighted average remaining maturity (WARM) method for estimating the allowance for credit losses.

January 10, 2019 WebPage Regulatory News
News

FED Updates Reporting and Supplemental Instructions for Form FR Y-9C

FED published the updated reporting instructions and supplemental instructions for the FR Y-9C reporting form. The reporting frequency for FR Y-9C is quarterly, as of the last calendar day of the quarter.

January 09, 2019 WebPage Regulatory News
News

PRA Updates Policy on Liquidity Reporting Under FSA047/048 and PRA110

PRA published the policy statement PS1/19 that provides feedback to responses to the consultation paper CP22/18 titled "Liquidity reporting: FSA047 and FSA048" and the proposal in CP16/18, which intended to correct the level of consolidation of the PRA110 reporting requirements.

January 08, 2019 WebPage Regulatory News
News

FED Proposes to Amend Company-Run Stress Testing Requirements

FED proposed to modify company-run stress testing requirements to conform with the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

January 08, 2019 WebPage Regulatory News
News

ESMA RTS on Supervisory Cooperation Under Securitization Regulation

ESMA issued the final regulatory technical standards (RTS) for cooperation between competent authorities and ESAs under the Securitization Regulation (2017/2402).

January 08, 2019 WebPage Regulatory News
News

ESAs Publish Joint Report on Regulatory Sandboxes and Innovation Hubs

ESAs published a joint report providing a comparative analysis of the innovation facilitators (that is, regulatory sandboxes and innovation hubs) established to date within the EU.

January 07, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2461