What should a Contingency Funding Plan (CFP) include and when does it get activated?

A Contingency Funding Plan (CFP) is a bank's playbook for surviving a liquidity crisis. Think of it as the emergency manual that sits on the treasurer's desk — ideally never used but regularly tested.

Essential Components of a CFP:

Escalation Trigger Framework:

At Alderly Bank Group (hypothetical), the CFP has three escalation levels:

Contingent Funding Sources (ranked by reliability):

1. Unencumbered HQLA — Can be sold or repo'd immediately
2. Central bank facilities — Discount window, emergency lending (carries stigma)
3. Committed credit lines — Pre-arranged with correspondent banks
4. Securitization — Monetize loan portfolios (takes weeks, not useful in acute crisis)
5. Asset sales — Non-core business disposals (months-long process)

Example — Alderly enters Level 2:

A major trading loss is reported in the press. Within 48 hours:

• Wholesale funding costs spike 60bps
• Two money market funds decline to roll their $1.5B in CP
• Rating agency places Alderly on negative watch

The treasury team activates Level 2:

• Draws $3B from committed revolving credit facility
• Increases repo borrowing using government bond portfolio ($8B unencumbered)
• Halts new syndicated loan commitments
• Begins daily liquidity crisis committee meetings

Testing requirement: Regulators expect CFPs to be tested at least annually through tabletop exercises where senior management walks through a simulated crisis scenario.

For CFP case studies and practice questions, visit our FRM Part II community on AcadiFi.