2025 liquidity risk management survey

Hot topics

• 2022 ‘mini-budget’: Four out of six of the firms stated that their liquidity was adversely impacted following the extreme market movements around the time of the mini-budget. While only one firm’s liquidity risk appetite was breached, three out of the six noted that they activated contingency plans in response. 
• Regulatory focus: While firms generally agreed that the PRA’s focus on liquidity management is well founded, five out of six respondents expressed concerns over reporting requirements around, for example, granularity of data, short timeframes and disproportionality to risks. In March 2025, the Liquidity Working Party also submitted an IFoA response to consultation paper CP19/24.
• Sources of risk: Asset-side risks stood out as the most common source of liquidity risk, mainly driven by collateral requirements from derivative positions. This reflected the prevalence of derivative use and their liquidity risk sensitivity. Five out of six respondents cited collateral posting as the main liquidity risk impacting their Matching Adjustment portfolios, and all respondents explicitly allow for collateral posting in their liquidity stresses.

Contingency and optimisation actions

• Contingency actions varied significantly by firm. These included repo, new/committed funding, internal funding and derivative novation.
• Several firms did not use any techniques to optimise their liquidity position. Those that did focus on optimising Credit Support Annexes (CSAs), either through selection of collateral or using CSAs that permitted the posting of gilts and corporate bonds.

Methodology 

• Metrics: The Liquidity Coverage Ratio (LCR), which represents available liquidity divided by required liquidity under a stressed scenario, is consistently the main metric internally considered by firms. Several firms also used variations on the LCR or tests based on LCR results, and firms tended to use several metrics to measure liquidity risk rather than relying solely on LCR.
• Time horizon: All firms monitor liquidity over a range of time horizons between 90 days and one year. On average, firms considered five different time horizons and four firms considered less than seven days.
• Stress calibration: Most firms set stresses at a 1-in-200 year level. Several firms stated that they use their Solvency II internal models to calculated liquidity stresses, but adjusted the models to reflect own liquidity risk exposures.
• Data: The responses to the usage of data and systems were varied. Data is obtained from a mixture of sources, for example accounting/ledger systems, third-party custodians’ data feeds and various teams across the business.
• Models: There was a strong tendency to leverage the output from the existing capital model, although a bespoke approach was also used. Where the capital model is used, the outputs taken varied from the capital model varied – from market risk calibrations, stressed liquidity metrics to operational and liability-related risks.

Process and governance

• Liquidity reporting: There were a range of responses for the time taken for firms to internally report on their liquidity positions after the valuation date. In some cases, estimated positions would be ready more quickly.
• Liquidity risk policy: Four out of seven respondents stated that finance would own their liquidity risk policy. Six firms review this policy at least annually, with one reviewing every two years. Those that did cited material risk appetite changes, model calibrations and expert judgement.
• Liquidity management: Five out of seven respondents outlined that different teams are responsible for liquidity management and asset liability management activities, though some noted that there would be close co-ordination between the differing teams.