Multicarrier reflectometry (MCR) for locating faults on live wires has recently been proposed. This paper studies the use of filterbanks for generation/synthesis of MCR test signals and also for signal analysis for fault identification and location. We note that the test signals have to be confined to the portion(s) of the frequency band that is (are) free of signals already on the wires in order to avoid interfering with them. Moreover, for effective analysis of the reflected waves, optimal filters that separate the test signal tones and also minimize leakage from the existing signals on the wires should be designed. We discuss the criteria necessary to design effective MCR systems and develop the relevant filterbank design procedures. We also introduce the novel idea of cognitive live wire testing, where the tester first measures the live wire signal activities and then decides on which part of the spectrum should be used for testing.