Definition
The survival horizon measures, in days or months, how long an institution's cumulative liquidity position stays positive under a stress scenario, given its counterbalancing capacity: liquid asset buffer, securities eligible at the central bank and available funding lines.
Unlike the LCR, it does not rely on fixed regulatory weights but on the bank's internal assumptions, and it covers horizons beyond thirty days.
Calculation method
- Build the liquidity gap by maturity bucket: contractual and behavioural inflows and outflows.
- Apply the stress scenario: deposit run-off, drawdowns on commitments, closed markets, higher haircuts.
- Add, bucket by bucket, the counterbalancing capacity available after haircuts.
- Find the first bucket where the cumulative position turns negative: that is the survival horizon.
The calculation is repeated for idiosyncratic, market-wide and combined scenarios, then in reverse stress testing: which shock intensity brings the horizon below the limit?
Regulatory requirement
The survival horizon is not a Pillar 1 ratio. It belongs to the ILAAP: supervisors expect institutions to measure their resilience to severe but plausible liquidity stress scenarios, set limits in their risk appetite framework and link these measures to their contingency funding plan. The EBA stress testing guidelines frame scenario design.
Practical challenges
- Calibrating run-off and drawdown rates, which are hard to observe outside crises.
- Valuing collateral and its real availability at each horizon, by currency.
- Building a quantified remediation plan: which items to adjust, and by how much, to return to the target horizon.
In RIALTO
This concept is covered by the GAP Insight Core module. The use case 'Reverse stress and remediation' shows it in practice.