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FRM Part II · FRM Exam Part II · Contingency Funding Planning

A bank in a severe idiosyncratic stress has a crisis team that meets daily. Retail deposits are running off, wholesale lenders are pulling lines, and rumours circulate. Which arrangement best reflects a strong crisis management procedure?

The strongest arrangement is a coordinated flow: treasury gives the crisis team consolidated liquidity positions, and communications issues consistent, approved messages to depositors, counterparties, regulators and staff. Fragmented contacts, withheld data or delayed messaging can feed rumours and accelerate the run.

  1. AEach business line independently contacts its own counterparties and media contacts to address concerns quickly
  2. BA single coordinated information flow in which treasury provides consolidated liquidity positions to the crisis team, and communications issues consistent, approved messages to depositors, counterparties, regulators and staffCorrect
  3. CTreasury withholds position data from the crisis team until a decision on funding is reached to avoid leaks
  4. DCommunications to external parties are delayed until the liquidity position has fully recovered

Explanation

In stress, uncoordinated messaging can amplify runs. Consolidated, timely data and consistent communication to all stakeholder groups support informed decisions and confidence. Withholding data blocks decisions, and delayed communication allows rumours to dominate.

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