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

A mid-sized bank's treasurer is drafting the purpose statement of the bank's Contingency Funding Plan (CFP). Which statement best describes the primary objective of a CFP?

A CFP's main objective is to give the bank a documented, actionable framework for detecting and responding to liquidity stress, covering responsibilities, escalation, communication and available contingent funding sources, so that shortfalls are met in an orderly way rather than through improvised, costly action.

  1. ATo set the bank's daily liquidity buffer size under normal business conditions
  2. BTo provide a documented framework for identifying and responding to liquidity shortfalls during stress, including roles, actions and funding sourcesCorrect
  3. CTo replace the bank's liquidity stress testing program with a single severe scenario
  4. DTo maximize net interest margin by lowering the amount of liquid assets held

Explanation

A CFP is a crisis-response framework that sets out how the bank will detect stress and act, including governance, escalation, communication and contingent funding sources. It is not a tool for normal-course buffer sizing. It also relies on stress tests as inputs rather than replacing them.

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