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FRM Part II · FRM Exam Part II · Early Warning Indicators

Which practice best links EWI triggers to the bank's contingency funding plan (CFP)?

The best practice is to map each trigger level to predefined escalation steps, owners and management actions in the contingency funding plan, and to review the triggers periodically. This ensures a breach leads to prompt, accountable action rather than ad hoc discussion.

  1. ATriggers are monitored by the treasury desk alone, with no predefined escalation
  2. BEach trigger level maps to predefined escalation steps, responsible owners and potential management actions in the CFP, and the triggers are reviewed periodicallyCorrect
  3. CTriggers are set only after a stress event occurs so they reflect the latest conditions
  4. DThe CFP is activated automatically for any single green indicator

Explanation

Effective EWI frameworks tie each trigger level to predefined escalation paths, owners and actions in the CFP, and are reviewed regularly. Ad hoc monitoring or setting triggers after stress removes the early warning value, and activating on green signals would be meaningless.

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