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

Why did regulators after the crisis emphasize that a bank's CFP should be integrated with its recovery planning and tested regularly?

Regulators want the plan integrated with recovery planning and regularly tested so that its actions prove feasible and understood by management under adverse market conditions. It supplements, rather than replaces, limits, early warning indicators, intraday monitoring, and it cannot assume lender-of-last-resort support.

  1. ATo ensure the plan's actions are feasible, well understood by management, and workable under conditions where markets and counterparties behave adverselyCorrect
  2. BTo replace the need for liquidity limits and early warning indicators
  3. CTo allow the bank to rely on the lender of last resort in all scenarios
  4. DTo eliminate the need for intraday liquidity monitoring

Explanation

Testing and integration confirm that contingent actions, such as asset sales or repo, are executable and that decision makers know their roles under stress. The plan complements, not replaces, limits and early warning indicators, and it does not justify reliance on central bank support or replace intraday monitoring.

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