Definition
The ILAAP (internal liquidity adequacy assessment process) is the process through which an institution continuously identifies, measures, manages and monitors its liquidity risk and funding risk. It checks that liquidity reserves and the funding profile remain adequate given the risk appetite, under normal and stressed conditions.
It covers two dimensions:
- short-term liquidity: the ability to meet cash outflows, including intraday, using the liquid asset buffer;
- structural funding: the stability and diversification of funding sources over the planning horizon.
The ILAAP concludes with a Liquidity Adequacy Statement, approved by the management body and submitted to the supervisor. It is the liquidity counterpart of the ICAAP for capital, and goes beyond LCR and NSFR compliance alone.
Content
- Identification of liquidity and funding risks, including concentrations and intraday risk.
- Measures: static, dynamic and stressed liquidity gaps, survival horizon, LCR, NSFR and ALMM, and their projection.
- Liquidity stress tests, idiosyncratic, market-wide and combined, and reverse stress testing.
- The liquidity buffer and counterbalancing capacity, their composition and their monetisation.
- The funding plan, the contingency funding plan and the funds transfer pricing framework.
- The risk appetite framework and associated limits.
Regulatory requirement
The ILAAP follows from Article 86 of the CRD, which requires robust strategies, policies and procedures to manage liquidity risk. The supervisor assesses it in the SREP and may draw qualitative or quantitative measures from it. The revised EBA SREP guidelines (EBA/GL/2026/06), applicable from 1 January 2027, specify how the reliability of internal assessments is reviewed; that reliability remains a matter for the supervisor's judgement.
Practical challenges
- Consistency between regulatory and internal measures, often produced in separate tools.
- Justifying stress assumptions, in particular deposit run-off rates and asset haircuts.
- Projecting ratios and gaps over the business plan, and quantifying remediation actions.
In RIALTO
This concept is covered by the GAP Insight Core module. The use case 'Reverse stress and remediation' shows it in practice.