The correct answer is C.

When developing scenarios for a liquidity stress testing program, institutions focus on defining the characteristics of the stress event itself. According to sound liquidity risk management principles, the design of a stress scenario typically involves:

1. Defining the scenario (e.g., historical, hypothetical, or a combination).
2. Distinguishing between types of risks/stress events, specifically assessing whether the stress is idiosyncratic (institution-specific), systematic (market-wide), or a combined stress event.
3. Distinguishing between levels of severity (e.g., mild, adverse, severely adverse) and defining the time horizon.

Option C, "Distinguish between sources of liquidity," is not a defining characteristic of the stress scenario itself. Rather, identifying and categorizing sources of liquidity (such as assessing the liquidity buffer, high-quality liquid assets, and available funding structures) is part of evaluating the bank's baseline balance sheet and determining how the institution will survive the modeled scenario. The scenario design focuses on the exogenous and endogenous shocks (the "stress"), rather than outlining the bank's liquidity sources.