Liquidity Crises: Uniquely Predictable? Lessons in Stress Testing from Citi’s Perspective

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Liquidity risk, as one industry leader put it, doesn’t matter - until it does. And when it does, it becomes the only thing that matters. 

Reflecting on the collapses of Silicon Valley Bank and Credit Suisse, the Global Head of Rapid Stress Testing at a leading New York bank said the old adage has never felt more relevant.

Speaking at CeFPro’s annual flagship American conference, Risk Americas, the executive drew on a paraphrase of Tolstoy’s Anna Karenina: “Every systemic crisis is similar, but every liquidity crisis is unique in its own way.” 

That uniqueness, the expert explained, is what makes liquidity risk so complex. The causes of the SVB and Credit Suisse failures were very different - one rooted in asset-liability management and interest rate exposure, the other in reputational and governance failings. Yet both converged on the same outcome: a liquidity crunch.

“This is precisely why we must treat liquidity stress testing not as a compliance exercise, but as an anticipatory tool for holistic risk management,” the speaker said.

According to the executive, even global systemically important banks face nuanced challenges.

“In times of market stress, we often see deposit inflows rather than outflows - a phenomenon that complicates our traditional assumptions of stress scenarios,” they noted. 

This forces institutions to consider difficult hypotheticals: under what conditions could even the largest and most liquid firms face a crunch? 

The possibilities, the speaker suggested, range from cyberattacks to geopolitical shocks or reputational damage.

While standard metrics such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) remain foundational, they do not capture the full picture. 

The expert argued that firms must push further, modelling “tail risks” that reflect the interplay between credit, market, and operational pressures.

But integration, the speaker acknowledged, is hard. Liquidity does not operate in isolation.