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

A bank's CFP defines three stages: Stage 1 (monitoring) when the 30-day net outflow ratio exceeds 60% of its limit, Stage 2 (heightened alert) above 80%, and Stage 3 (crisis) above 100%. Retail deposits are 400 million with an outflow limit of 10% over 30 days under the stress assumption, and wholesale funding of 200 million has a limit of 40%. Total stressed limit is therefore 40 + 80 = 120 million. Observed 30-day outflows are 60 million retail-equivalent run-off and 40 million wholesale. Which stage applies?

Stage 2 applies. Observed outflows total 100 million against a stressed limit of 120 million, a utilisation of about 83.3%. That exceeds the 80% heightened-alert threshold but remains below the 100% crisis threshold, so the plan should escalate to Stage 2.

  1. ANo stage triggered
  2. BStage 1 (monitoring)
  3. CStage 2 (heightened alert)Correct
  4. DStage 3 (crisis)

Explanation

Total observed outflow = 60 + 40 = 100 million. Ratio to limit = 100/120 = 83.3%, which is above 80% but below 100%. This is Stage 2. Stage 1 would be wrong because it ignores the higher threshold already crossed.

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