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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank's contingency funding plan (CFP) is being reviewed by the risk committee. Which feature would most strengthen the CFP's usefulness during an actual liquidity crisis?

The most useful feature is clearly defined early-warning triggers tied to escalation procedures, assigned roles and pre-identified, tested funding actions. This lets management act quickly and credibly in a crisis, whereas single-source reliance, no ownership or infrequent updates leave the plan ineffective.

  1. AClearly defined early-warning triggers linked to escalation procedures, assigned roles and pre-identified, tested funding actionsCorrect
  2. BA single long narrative of past crises without assigned responsibilities
  3. CReliance on a single committed credit line as the sole contingent source
  4. DA plan that is updated only when regulators request it

Explanation

An effective CFP links indicators to escalation, specifies who does what, and lists contingent funding actions that have been tested operationally. Reliance on one source concentrates risk, and infrequent updates leave the plan stale.

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