Regulatory Alerts2024-01-30
Liquidity Risks of Derivatives Portfolios of Pension Funds Under Various Stress Scenarios
The AFM and DNB conducted a stress test on pension funds and pension administration organizations (PUOs) to assess liquidity risks arising from derivatives portfolios under severe interest rate and currency shocks combined with repomarket constraints. The results indicate that while PUOs can meet margin requirements without mass asset sales by utilizing cash, repos, and money market funds, they remain heavily dependent on the functioning of the repomarket and money market funds. In extreme worst-case scenarios where these markets dry up, pension funds may be forced to sell billions in assets, posing systemic risks that could be mitigated by a stronger macroprudential framework for the non-banking sector.
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