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

A bank's CFP shows a 30-day stressed net cash outflow of USD 900 million. The buffer holds USD 500 million of cash at the central bank, USD 600 million market value of unencumbered bonds with a 10% stress haircut, and USD 300 million of unencumbered loans eligible at the central bank facility with a 40% haircut. The bank also expects to lose USD 80 million of buffer value from collateral calls on derivatives. What is the surplus or shortfall after counting all buffer sources?

The bank has a surplus of USD 240 million: cash of 500, bonds of 540 after haircut and loans of 180 after haircut total 1,220; subtracting 80 of collateral calls leaves 1,140, which exceeds the 900 outflow. None of the listed options matches.

  1. AShortfall of USD 20 millionCorrect
  2. BSurplus of USD 60 million
  3. CSurplus of USD 140 million
  4. DShortfall of USD 100 million

Explanation

Cash 500; bonds 600 x 0.90 = 540; loans 300 x 0.60 = 180. Total = 1,220. Subtract collateral calls of 80 = 1,140. Minus outflow 900 = surplus of 240. This does not match the options, so the correct figure is a surplus of USD 240 million.

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