What should a Contingency Funding Plan contain?

Question

AcadiFi · Accepted Answer

A Contingency Funding Plan (CFP) is the playbook for maintaining liquidity during periods of stress. Regulators (OCC, FDIC, PRA, EBA) require CFPs for all systemically important institutions and most community banks. A credible CFP includes five core sections:

1. **Governance and roles** — identifies the Crisis Management Team (CEO, CFO, CRO, Treasurer), decision authorities, communication lines with regulators, and daily/hourly cadence during activation.

2. **Early warning indicators (EWIs)** — quantitative triggers such as LCR falling below 110%, deposit attrition >5% per week, CDS spreads widening 100+ bps, rating agency negative watch, and qualitative triggers like adverse media or internal ops failures.

```mermaid
flowchart TD
    A[Monitor EWIs] --> B{Trigger breached?}
    B -->|Yes| C[Activate CFP]
    B -->|No| A
    C --> D[Crisis Team meets]
    D --> E[Funding actions]
    D --> F[Regulator notify]
    D --> G[Asset contingencies]
```

3. **Funding options inventory** — ranked list: central bank discount window, committed lines of credit, repo against unencumbered Level 1, secured funding via FHLB, wholesale CD issuance, asset sales (HQLA first, then loans). Each option includes size, time to access, pricing, and documentation status.

4. **Stress scenarios and action matrix** — maps specific scenarios (deposit run, rating downgrade, market freeze) to action sequences. Example: Kenshire Mutual Bank's CFP shows a rating-downgrade scenario triggering immediate $2B repo activation, CD issuance pause, and communication to top-50 depositors.

5. **Testing and maintenance** — annual fire drill exercising data flows, legal documentation, and decision-making. Post-drill lessons feed CFP updates.

FRM candidates should know CFP must integrate with resolution/recovery plans, LCR stress assumptions, and internal liquidity adequacy assessment (ILAAP). Weak CFPs were a cited failure in 2023 regional bank collapses, spurring tighter supervisory reviews.

What should a Contingency Funding Plan contain?

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