101. Though capital is not a direct mitigation for liquidity risk and liquidity is not a mitigation for capital risk, both risk types are interlinked. The Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP) are expected to inform each other; with respect to the underlying assumptions, stress test results, and forecasted management actions. Each bank is expected to assess the potential impact of scenarios, integrating capital and liquidity impacts, and potential feedback processes, taking into account, in particular, losses arising from the liquidation of assets, increased funding costs or availability of funding during periods of stress.

102. For example, each bank is expected to assess the impact of deteriorating capital levels, as projected in the ICAAP, on their liquidity. A downgrade by an external rating agency could, for example, have direct implications for the refinancing ability of the bank. Vice versa, changes in funding cost could impact capital adequacy.