Skip to content

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

A bank's treasurer is reviewing lessons from the 2007-2009 crisis for the firm's contingency funding plan (CFP). Which feature is most consistent with regulatory guidance on an effective CFP?

An effective contingency funding plan defines stress scenarios covering firm-specific and market-wide events, with clear escalation triggers and assigned responsibilities. Guidance does not allow reliance on central bank support as a primary source, ignoring subsidiaries, or waiting until after a crisis to update the plan.

  1. AAssuming that central bank facilities will always be available as the primary source of funds during stress
  2. BDefining stress scenarios that include both idiosyncratic and market-wide events, with clear escalation triggers and assigned responsibilitiesCorrect
  3. CLimiting the plan to the parent entity so that subsidiaries' needs are handled separately and informally
  4. DUpdating the plan only after a liquidity event has occurred, using actual experience

Explanation

Regulatory guidance expects a CFP to cover idiosyncratic, market-wide and combined stresses, with early warning triggers, escalation procedures and defined roles. Relying on central bank facilities as the primary source is not prudent, since access is not guaranteed. Ignoring subsidiaries or updating only after an event contradicts the requirement for regular testing and review.

Did you get it right without looking?

One question tells you little. A timed set on Contingency Funding Planning shows your real accuracy, how long you take and where you lose marks.

Practise Contingency Funding PlanningFree diagnostic mock

More Contingency Funding Planning questions