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

A bank's CFP stress scenario shows a 30-day cumulative net cash outflow before mitigating actions of USD 900 million. Existing liquid assets that can be monetised total USD 600 million. Management lists these contingent actions: sell loans portfolio expected to raise USD 150 million, draw a committed facility of USD 200 million that the lender may refuse if the bank's rating falls below a level the scenario assumes is breached, and reduce new lending to save USD 80 million. Using prudent CFP assumptions that exclude the facility, what is the surplus or shortfall after all remaining actions?

There is a shortfall of USD 70 million. Available resources are 600 plus 150 plus 80, or 830 million, because the facility is excluded under the scenario's rating breach. Against 900 million of outflows, this leaves a 70 million gap.

  1. AShortfall of USD 70 millionCorrect
  2. BSurplus of USD 130 million
  3. CShortfall of USD 150 million
  4. DSurplus of USD 30 million

Explanation

Sources available: 600 + 150 + 80 = 830 million, excluding the 200 million facility that is unavailable in the scenario. Net position = 830 − 900 = −70, a shortfall of USD 70 million. Including the facility would give a USD 130 million surplus, which is the error.

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