FRM Part II · FRM Exam Part II · Contingency Funding Planning
A mid-sized bank's treasurer is asked to explain the primary purpose of the bank's contingency funding plan (CFP) to the board. Which statement best describes that purpose?
The main purpose of a contingency funding plan is to set out how a bank will respond to a liquidity stress, including the strategies, responsibilities and funding sources it will use to meet obligations. It is a crisis response framework, not a normal-conditions limit, earnings or capital planning tool.
- ATo set the daily intraday liquidity limits for the payments desk under normal conditions
- BTo define the strategies, responsibilities and sources of funding the bank will use to meet liquidity needs during a stress eventCorrect
- CTo forecast the bank's expected net interest margin over the next fiscal year
- DTo determine the regulatory capital buffer required against credit losses
Explanation
A CFP is a formal set of policies, procedures, action plans and responsibilities for responding to liquidity stress. It is not a business-as-usual limit framework, an earnings forecast or a capital plan. The distractors describe intraday management, earnings planning and capital planning, which are separate processes.
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