Banking Law and Liquidity Run Simulation Models in Spain

A liquidity run simulation asks a practical question: If depositors withdraw money rapidly and other lenders stop providing funding, how long can a bank meet payments as they fall due? In Spain, banks use these simulations as part of liquidity risk management and the Internal Liquidity Adequacy Assessment Process (ILAAP). They help management and supervisors identify a funding shortfall before it becomes an immediate crisis.

These models have no single, Spain-specific statutory formula. Spanish banks operate under EU liquidity requirements, while the European Central Bank (ECB) supervises significant banks and Banco de España supervises less significant banks within the Single Supervisory Mechanism. The ECB’s ILAAP guidance calls for bank-specific adverse scenarios and forward-looking liquidity planning; Banco de España also identifies liquidity as a risk assessed through stress testing.

1. The legal framework

The Liquidity Coverage Ratio (LCR) requires a bank to hold a buffer of high-quality liquid assets against net cash outflows over a 30-day stress period. The generally applicable minimum is 100%. EU Delegated Regulation 2015/61 specifies which assets count, how outflows and inflows are treated, and the stress assumptions used for the regulatory calculation.

The LCR is a common regulatory measure, but a bank also needs its own run scenarios. Its customers may withdraw faster than standard regulatory assumptions suggest; a large depositor may leave in one day; or assets counted in a regulatory buffer may take time to turn into usable cash. ILAAP therefore examines whether the bank can continue meeting obligations under credible, bank-specific stress. ECB supervisory methodology treats liquidity stress tests as an important part of that assessment.

2. How a run simulation works

A bank starts with its available cash and usable liquid assets. It then projects cash entering and leaving the bank, often day by day at the start of the scenario. A sound model considers:

The model’s central output is often the survival period: the point at which projected usable liquidity can no longer cover projected payments. Management should examine several paths, including a bank-specific loss of confidence, a market-wide disruption, and a combined event. Assumptions need evidence and regular challenge. For example, a proposed asset sale should reflect likely buyers, price discounts, settlement time and any restrictions on using the asset.

An illustrative bank might begin with €12 billion of usable liquidity. If a scenario projects €9 billion of net outflows in its first week, it has a €3 billion projected cushion at that point. If further withdrawals exhaust that cushion on day 12, day 12 is the modeled survival point. It is a warning for contingency planning, not a prediction that the bank will necessarily fail on that date.

3. What the bank must do with the result

A severe result should lead to decisions: closer monitoring of withdrawals, revised funding limits, confirmed access to eligible collateral, and a credible contingency funding plan. Senior management must understand when an assumed response could actually be executed. Supervisors can use weaknesses in the model, governance or funding position in their review of the bank.

A deteriorating LCR or a short modeled survival period does not, by itself, automatically mean resolution. Authorities assess the bank’s actual condition and the applicable legal conditions. Banco Popular shows why speed matters: a bank can face an acute liquidity crisis even while questions about its longer-term value and capital position remain contested.

4. Six relevant judicial decisions

Scope of the case law: There are not six Spanish judgments establishing a standard formula for liquidity run simulations. The six decisions below concern the resolution of Spain’s Banco Popular. They are relevant because they examine legal responses to a rapid liquidity crisis. They should not be read as judicial approval of any particular simulation model.

1. Fundación Tatiana Pérez de Guzmán el Bueno and SFL v SRB, T‑481/17 (General Court, 2022). This challenge to Banco Popular’s resolution addressed, among other matters, the legal basis and reasoning for the resolution measure. It illustrates why a liquidity crisis must be documented clearly enough for subsequent legal scrutiny. Qualification: the Court of Justice later set aside the General Court’s finding on admissibility of the action against the SRB scheme; the 2022 judgment must therefore not be presented without that later procedural outcome. 
2. Del Valle Ruíz and Others v Commission and SRB, T‑510/17 (General Court, 2022). Investors challenged the resolution on grounds including the right to be heard, property rights and the duty to state reasons. For run planning, its relevance is the distinction between internal preparation for a crisis and the separate legal requirements governing a resolution decision. 
3. Eleveté Invest Group and Others v Commission and SRB, T‑523/17 (General Court, 2022). This was another challenge arising from the same resolution, including issues of reasoning and non-contractual liability. It shows that decisions taken during a fast-moving liquidity crisis may later be examined through several legal claims. 
4. Algebris (UK) and Anchorage Capital Group v Commission, T‑570/17 (General Court, 2022). Investors raised issues including the duty to give reasons, good administration and property rights. The practical connection is that a supervisor or resolution authority needs a reasoned record of the conditions and information available when it acts. 
5. Aeris Invest v Commission and SRB, T‑628/17 (General Court, 2022). This challenge concerned the Banco Popular resolution and issues including the right to be heard, property rights and the resolution framework. The judgment’s account of events records the deterioration of Banco Popular’s liquidity position; that real event is a useful test of whether a bank’s run model captures sufficiently rapid outflows. 
6. Aeris Invest v Commission and SRB, C‑535/22 P (Court of Justice, 2024). On appeal, the Court addressed the conditions for resolution and the authorities’ duties, including care and reasoning. It reinforces the need to distinguish a bank’s internal stress-test result from the authority’s legally required assessment when deciding whether resolution conditions are met. 

These are six separate court decisions, but they arise from one bank failure. They provide substantial case law on the legal response to an actual Spanish liquidity run; they do not provide six independent examples of banks’ simulation practices.

Conclusion

For a Spanish bank, a useful liquidity run model turns a broad risk—“customers may withdraw funds”—into a timed cash-flow test and an executable response. EU rules supply the minimum liquidity framework, while ILAAP requires the bank to examine its own vulnerabilities. The Banco Popular litigation demonstrates the stakes when liquidity deteriorates quickly and authorities must make decisions that can withstand legal review.