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An FBB must have a formal Contingency Funding Plan (CFP) that clearly sets out the strategies for addressing liquidity shortfalls in stressed situations. The plan must outline policies to manage a range of stress environments, establish clear lines of responsibility and include clear invocation and escalation procedures.
97.
An FBB’s CFP must be commensurate with its complexity, risk profile, scope of operations and role in the financial systems. The plan must articulate available contingency funding sources and the amount of funds an FBB estimates can be derived from these sources, clear escalation/prioritisation procedures detailing when and how each of the actions can and must be activated and the lead time needed to tap additional funds from each of the contingency sources. The CFP must provide a framework with a high degree of flexibility so that an FBB can respond quickly in a variety of situations.
98.
The plan’s design, scope and procedures must be closely integrated with the FBB’s ongoing analysis of liquidity risk and with the assumptions used in its stress tests and the results of those stress tests. As such, the plan must address issues over a range of different time horizons, including intraday.
99.
For an FBB that has significant retail deposits, the plan must address a retail deposit run and must include measures to repay retail depositors as soon as practicable. The retail run contingency plan must not rely upon closing distribution channels to retail depositors. The retail run contingency plan must seek to ensure that, in the event of a loss of market confidence in the FBB, retail depositors wishing to retrieve their deposits may do so as quickly and as conveniently as is practicable in the circumstances, and within the contractual terms and conditions applicable to the relevant deposit products.
100.
An FBB’s CFP must be reviewed and tested, at least annually, to ensure its effectiveness and operational feasibility. An FBB’s GM/CEO must review and approve the contingency funding plan, at least annually, or more often as changing business or market circumstances require.
