4.8.1 Stress testing for ICAAP/ILAAP purposes

187. As part of ICAAP and ILAAP, institutions should ensure that they have enough capital and liquidity resources to cover for the risks that institutions are, or might be, exposed to, and ensure the appropriate allocation of capital and liquidity resources across the entities of an institution over the economic cycle. This assessment should be reflected in the capital and liquidity plans that institutions should submit to the competent authorities as part of their ICAAP and ILAAP information and as part of the group risk assessment and liquidity profiles.

188. Furthermore, by means of stress testing, institutions should evaluate the reliability of their capital plans under stress conditions to ensure that they meet the capital requirements applicable to them. Any evaluation of capital plan reliability under stressed conditions should take into consideration scenario severity and occurrence probability. Institutions should also test the reliability of their liquidity plans to ensure that they can meet liabilities as they fall due under stress conditions. Institutions should assess the level of transferability of capital and liquidity resources in stressed conditions and consider any possible impediments, including legal, organisational and operational impediments. Institutions should, where appropriate, recognise that certain elements of capital requirements, as well as the liquidity buffers, may be used in stressed conditions (e.g. elements of the combined buffer requirements as specified in Chapter 4 of Title VII of Directive 2013/36/EU).