What should a contingency funding plan include?

What should a contingency funding plan include?

Contingency Funding Plans: What to Expect from Examiners

• Identify contingent liquidity events.
• Assess severity of events.
• Assess funding needs.
• Identify potential funding sources.
• Establish processes for monitoring and event management.

What is liquidity policy?

For a corporate entity, liquidity risk is the risk that it cannot meet its financial obligations as they fall due. The Reserve Bank has imposed minimum prudential standards on registered banks, addressing the degree of liquidity risk that they take on, and their approach to managing that risk. …

Why contingency funding plan is important?

A contingency funding plan (CFP) is, at its core, a liquidity crisis management instrument. As an assessment tool, the contingency planning process provides additional insight into the community bank’s liquidity strengths and weaknesses beyond the bank’s normal reporting activities.

What are contingency plans?

Contingency planning is defined as a course of action designed to help an organization respond to an event that may or may not happen. Contingency plans can also be referred to as ‘Plan B’ because it can work as an alternative action if things don’t go as planned.

What is the core funding ratio?

The CFR compares an estimate of a bank’s funding that is stable and can be assumed to stay in place for at least 1 year (‘core funding’), and the core lending business of a bank that needs to be funded on a continuing basis. …

What are the basic principles of banking?

Answer: The principles of commercial banking are the principles of:

• Liquidity.
• Profitability.
• Solvency.
• Safety.
• Collection of Savings.
• Loans and Investment Policy.
• Economy.
• Providing services.

How do banks resolve illiquidity problems?

For the economy as a whole, a liquidity crisis means that the two main sources of liquidity in the economy—banks loans and the commercial paper market—become suddenly scarce. Banks reduce the number of loans they make or stop making loans altogether.

How do you write a contingency plan?

8 steps for contingency planning

1. Make a list of risks.
2. Weigh risks based on severity and likelihood.
3. Identify important risks.
4. Create contingency plans for the biggest risks.
5. Get approval for your contingency plan.
6. Distribute your contingency plans.
7. Monitor your contingency plans.
8. Create new contingency plans if necessary.

What is a contingency funding plan?

Contingency Funding Plan: Banking Busywork or Essential Management Tool? A contingency funding plan (CFP) is, at its core, a liquidity crisis management instrument.

What is a community bank CFP?

Building a Quality Community Bank CFP. Fundamentally, a CFP is a bank’s battle plan as well as a primary tool for assessing liquidity risk. A CFP uncovers cross-exposures, funding concentrations, and operational strengths and weaknesses, which are beneficial pieces of information in any environment.

Is Clairvoyance required for contingency planning?

After all, clairvoyance is not typically listed as a required banking skill. Luckily, the objective of the contingency planning process is not to predict the future. Rather, the CFP’s great value lies in its utility both as a crisis management document and a regular deep dive into the bank’s liquidity profile.

Does the size of the bank matter for liquidity stress testing?

In general, there is a positive correlation between the size of the bank and the existence of liquidity stress testing carried out at the group level. While in the case of small banking groups there was no group-wide stress testing at all, most large banks (21 out of 24) perform it on a group-wide basis.