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

A mid-sized bank is drafting its contingency funding plan (CFP). The board asks which body should be primarily responsible for approving the CFP and the liquidity risk tolerance on which it rests. Which assignment is most consistent with sound CFP governance?

The board of directors, or a designated board committee, should approve the contingency funding plan and the liquidity risk tolerance, while senior management implements and maintains it. Treasury executes, audit reviews independently, and regulators only supervise, so none of them is the approving authority.

  1. AThe board of directors, or a board committee, approves the CFP and risk tolerance, while senior management implements itCorrect
  2. BThe treasury desk alone approves the CFP because it manages daily funding
  3. CInternal audit approves the CFP so that it remains independent of the business
  4. DThe regulator approves the CFP and the bank only executes it

Explanation

Sound governance places ultimate approval of liquidity risk tolerance and the CFP with the board or its committee, with senior management responsible for implementation and maintenance. Treasury executes and audit reviews independently but does not approve. Regulators supervise but do not own the plan.

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