The ICAAP is a bank’s own assessment of whether it has enough capital for its risks; the ILAAP is its own assessment of whether it has enough liquidity and stable funding. They answer different questions under different parts of the PRA Rulebook, and the PRA reviews each in its own supervisory process and sets its own requirement from it. Written well, they share one balance sheet and one set of stresses.
What is the difference between an ICAAP and an ILAAP?
The resource being tested. The ICAAP rests on the overall financial adequacy rule in the Internal Capital Adequacy Assessment Part of the PRA Rulebook: a firm must hold financial resources adequate in amount and quality so its liabilities can be met when they fall due. The ILAAP rests on the overall liquidity adequacy rule in the Internal Liquidity Adequacy Assessment Part, rule 2.1: a firm “must at all times maintain liquidity resources which are adequate, both as to amount and quality”, so that there is “no significant risk that its liabilities cannot be met as they fall due”.
A bank can pass one and fail the other. A well-capitalised lender funded by flighty wholesale deposits can run out of cash long before it runs out of capital, and a bank sitting on a large buffer of gilts can still be undercapitalised for a concentrated loan book. That is why the two assessments are separate, and why the supervisor reads them together.
| Question | ICAAP | ILAAP |
|---|---|---|
| What does it test? | Whether capital is adequate in amount, type and distribution for current and future risks | Whether liquidity resources and funding are adequate in amount and quality |
| Anchor rule | Overall financial adequacy rule, Internal Capital Adequacy Assessment Part 2.1 | Overall liquidity adequacy rule, Internal Liquidity Adequacy Assessment Part 2.1 |
| PRA guidance | SS31/15 (SS4/25 for SDDTs from 1 January 2027) | SS24/15 |
| Supervisory review | SREP | Liquidity SREP (L-SREP) |
| What the PRA sets | A Pillar 2A capital requirement and a PRA buffer | Individual liquidity guidance, including an amount and quality of high-quality liquid assets |
| Main horizon | A capital projection over three to five years | Survival under stress: the 30-day LCR horizon, the firm’s own survival period and the PRA’s Pillar 2 scenarios |
| Update cycle | Annually; every two years for SDDTs that are not new and growing banks | Annually; every two years for SDDTs that are not new and growing banks |
| Who approves it | The management body (SS31/15 paragraph 2.2) | The management body (Internal Liquidity Adequacy Assessment 13.3) |
| Contingency document | Recovery plan | Liquidity contingency plan, also called the contingency funding plan |
What does the PRA do with each one?
It turns them into two different requirements. After reviewing the ICAAP in the SREP, the PRA sets a Pillar 2A capital requirement for risks Pillar 1 does not fully capture, and a PRA buffer sized so the firm can keep meeting the overall financial adequacy rule in a stress (SS31/15 paragraphs 5.14 and 5.20). Our guide to what an ICAAP is covers that process.
After the L-SREP, the PRA gives the firm individual liquidity guidance. SS24/15 says a key element is advising the firm of “the amount and quality of HQLAs” the PRA considers appropriate, and that this quantitative guidance extends beyond the buffer the firm must hold under the liquidity coverage ratio. The PRA’s methodology for these Pillar 2 liquidity add-ons is in its statement of policy SoP1/18, which covers cash flow mismatch risk, franchise viability risks such as debt buybacks and non-margined derivatives, intraday liquidity and other risks including margined derivatives and intragroup liquidity.
What must each document contain?
The ICAAP covers the firm’s material risks, the capital it holds against each, stress testing and a capital projection over three to five years before and after realistic management actions (SS31/15 paragraphs 2.1 and 3.9). Our ICAAP page sets out the full contents.
The ILAAP sets out the firm’s approach to liquidity and funding, and the Rulebook fixes several things it must include. The management body sets the liquidity and funding risk appetite (rule 4.1). The firm runs appropriate stress tests regularly, with results reviewed by senior management and reported to the management body (rules 11.3 and 11.7). It keeps an effective liquidity contingency plan, “tested at least annually” and approved by senior management (rules 12.1 and 12.3). SS24/15 expects a clearly articulated risk appetite statement “defining the duration and type of stress or stresses that the firm aims to survive”. The PRA does not set one survival period for every firm; the firm sets its own and defends it. Our ILAAP page covers the templates and the Pillar 2 liquidity scenarios.
Where do the ICAAP and ILAAP connect?
In four places, and a supervisor reading both will check each one.
Four places where the ICAAP and ILAAP must agree
| Aspect | ICAAP | ILAAP |
|---|---|---|
| Stress scenarios | A severe downturn erodes capital | The same downturn drains deposits and wholesale funding |
| Balance sheet projection | Deposit growth funds the lending in the capital plan | The same deposit growth figure appears in the funding plan |
| Management actions | Selling liquid assets to protect a capital ratio | Holding the same assets as a liquidity buffer, so both cannot happen |
| Contingency documents | Recovery plan | Liquidity contingency plan; SS24/15 paragraph 2.40A strongly encourages combining the two |
- The stress scenarios. A severe downturn that erodes capital in the ICAAP also drains deposits and wholesale funding. If the ILAAP describes a different world, one of the two documents is wrong.
- The balance sheet projection. The deposit growth that funds the lending in the ICAAP capital plan is a liquidity assumption, and it should be the same figure in the ILAAP funding plan.
- Management actions. Selling liquid assets to protect a capital ratio and holding the same assets as a liquidity buffer cannot both happen. The same action should not rescue both documents.
- The contingency documents. SS24/15 paragraph 2.40A “strongly encourages” firms to combine the liquidity contingency plan and the recovery plan into one integrated document, which only works if the indicators and options in each agree.
We build one scenario set and run it through both assessments, so the capital numbers and the cash flow numbers come from the same assumptions. It is quicker than reconciling two sets of models after the event, and it is what a board needs if it is to sign both documents with confidence.
Who owns each assessment?
The board owns both. SS31/15 paragraph 2.2 expects the ICAAP to be the responsibility of the management body, approved by it and used in its decisions, and rule 13.3 of the Internal Liquidity Adequacy Assessment Part requires the management body to approve the ILAAP. Under the Senior Managers Regime, responsibility for managing the allocation and maintenance of the firm’s capital, funding and liquidity is a prescribed responsibility (Allocation of Responsibilities 4.1(7)), often held by the chief finance officer. In practice the risk function writes the risk and stress sections, finance owns the capital plan and treasury owns the funding plan and the liquidity buffer. The documents break at the joins between those teams.
What changes in 2027?
Mostly the ICAAP. ICAAPs signed off by boards from 1 January 2027 have to be prepared on a Basel 3.1 basis (PS15/26 paragraph 6.5), which our article on updating your ICAAP for Basel 3.1 covers. The ILAAP framework is not rewritten by Basel 3.1, but the capital plan it shares a balance sheet with is, so the funding assumptions need to follow. Small domestic deposit takers that are not new and growing banks already update both documents every two years, a change that took effect on 20 January 2026 under PS4/26; our SDDT page covers who qualifies.
Our Risk Advisory team writes and reviews both documents, and the RisKIT liquidity models and capital models run the numbers in open Excel from one set of inputs. Terms are defined in our glossary.
Questions readers ask
Can the ICAAP and ILAAP be one document?
They are separate assessments under separate Rulebook Parts and the PRA reviews them in separate processes, so each needs its own conclusions and approval. Firms can share chapters, such as the business model, governance and stress scenarios, as long as each assessment stands on its own.
Does the PRA require a 90-day survival period?
Not as a single rule. SS24/15 expects the firm’s risk appetite to define the duration and type of stress it aims to survive, and the PRA’s Pillar 2 liquidity framework uses a 30-day granular LCR scenario alongside 90-day retail-only and wholesale-only benchmark scenarios (SoP1/18 paragraphs 3.8 and 3.13).
How often must the ILAAP be updated?
Annually for most firms. SS24/15 says SDDTs and SDDT consolidation entities that are not new and growing banks should update their ILAAP documents at least every two years.
Who signs the ILAAP?
The management body. Rule 13.3 of the Internal Liquidity Adequacy Assessment Part says a firm “must ensure that its management body approves the firm’s ILAAP”.
Sources: PRA Rulebook, Internal Liquidity Adequacy Assessment Part, rules 2.1, 4.1, 11.3, 11.7, 12.1, 12.3 and 13.3; PRA Rulebook, Internal Capital Adequacy Assessment Part, rule 2.1; PRA SS24/15 (January 2026 version), including paragraph 2.40A; PRA SS31/15, paragraphs 2.1, 2.2, 3.9, 5.14 and 5.20; PRA SoP1/18 Pillar 2 liquidity (December 2023), paragraphs 3.8 and 3.13; PRA Rulebook, Allocation of Responsibilities Part, rule 4.1(7); PRA PS15/26 (28 May 2026), paragraph 6.5; PRA PS4/26 (20 January 2026). Accessed 29 September and 1 October 2026.
How we research and check our articles: our editorial policy.