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P2.T8.20.12. Contingency Funding Planning (Venkat, Ch7)

Nicole Seaman

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Learning objectives: Discuss the relationship between contingency funding plan and liquidity stress testing. Evaluate the key design considerations of a sound contingency funding plan. Assess the key components of a contingency funding plan (governance and oversight, scenarios and liquidity gap analysis, contingent actions, monitoring and escalation, data and reporting).

Questions:

20.12.1. Which of the following provides the BEST explicit link(s) between a bank's contingency funding plan (CFP) and its liquidity stress testing framework?

a. Communication plan
b. Limit structure and escalation levels
c. Funding sources concentration and non-core funding
d. Industry factors such as profitability trends in the financial sector


20.12.2. When Acme Bank engaged its staff to develop a sound contingency funding plan (CFP), the bank explicitly included the following five design considerations?

I. Aligned to business and risk profiles
II. Integrated with broader risk management frameworks
III. Theoretical basis for precoded instruction set
IV. Inclusive of appropriate stakeholder groups
V. Supported by a communication plan

Although there exists no single, universal contingency funding plan (CFP), each of the bank's above considerations appears to be correct EXCEPT which is likely incorrect?

a. I. is incorrect and better is: Aligned to liquidity stress testing framework
b. II. is incorrect and better is: Integrated with economic value added framework
c. III. is incorrect and better is: Operational and actionable, but flexible playbook
d. V. is incorrect and better is: Approved by national supervisor


20.12.3. Which of the following is CORRECTLY specified as a key component of a typical contingency funding plan, CFP?

a. Governance and oversight include stakeholder involvement, roles, and responsibilities
b. Contingent actions include overnight borrowings to total assets
c. Monitoring and escalation include adjusting pricing strategies and issuing subordinated debt
d. Data and reporting includes Level 1, Level 2 and Level 3

Answers here:
 
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