Contingency funding plans · RiskAtoms Academy

By the end you will be able to

1Explain what a contingency funding plan is for and what it contains: early warning indicators, escalation, an actions menu, roles and communication.
2Size each action by how much it raises, how fast and at what cost, and test a plan against the book's combined stress.
3Explain why actions that need market access or new collateral arrangements fail in a name-specific stress, and why pre-positioned collateral matters.
4Describe how a plan is governed and tested.

Why it matters

On 9 March 2023 depositors took more than $40 billion out of Silicon Valley Bank in a single day, and its management expected $100 billion more the next. The bank was closed on 10 March. When the Federal Reserve reviewed what went wrong, it found that the bank had failed its own internal liquidity stress tests and “did not have workable plans to access liquidity in times of stress”. A stress test tells a bank how long it can last. A contingency funding plan is what it does with that time.

Core explanation

From survival days to a plan

Illustrative dataRiskAtoms Bank plc's liquidity book

A £67bn balance sheet on one made-up reporting date, in pounds: every line's contractual maturity, its HQLA level, LCR rate and NSFR factors, the undrawn facilities and collateral triggers, and a daily 90-day stress test in three scenarios. The numbers are round illustrative values, not any bank's data, and the cash flows are principal only (no interest). The same book runs through every lesson in Module 3.5, so the figures agree.

Extra for this lesson: an actions menu (what each action raises, from which day, and its cost over 90 days) and eight early warning indicators with trigger levels and readings. All are illustrative. The amounts that depend on the book are computed from it, and the stress test itself is the book's, unchanged.

L3.5.05: Liquidity stress tests and survival horizons ran the book through three 90-day stresses. In the combined stress the bank starts with £13.89bn of counterbalancing capacity and survives 47 days; by day 90 it would be £2.96bn short. The contingency funding plan (CFP) is the answer to that number. The Basel Committee's 2008 principles ask every bank for a formal one that sets out its strategies for liquidity shortfalls in a range of stresses, with clear responsibilities, invocation and escalation procedures, and that is “regularly tested and updated to ensure that it is operationally robust”. It has four parts.

1. Seeing it coming

Early warning indicators are measures with trigger levels, watched daily. Some are about the bank itself: its credit spread and share price, deposit outflows, how much wholesale funding rolls over, collateral calls. Others are about the market: interbank spreads, volatility. The Basel principles give a downgrade and difficulty placing short-term liabilities such as commercial paper as examples. Good indicators lead: they turn before the buffer falls.

ExploreThe early warning dashboard

Illustrative indicators and triggers for RiskAtoms Bank. Switch from a calm day to day 3 of the combined stress.

Reading

Indicator	Type	Amber / red	Reading	Status
Own five-year CDS spread	own name	≥ 120bp / 200bp	70bp	green
Share price fall over 5 days	own name	≥ 10% / 20%	1.0%	green
Retail deposit outflow, 1 day	own name	≥ 0.5% / 1.0%	0.1%	green
Wholesale funding rolled over	own name	≤ 80% / 60%	95%	green
Collateral calls in the day	own name	≥ £150m / £300m	£20m	green
LCR	own name	≤ 130% / 110%	157%	green
Interbank spread, 3 months over OIS	market	≥ 40bp / 80bp	15bp	green
Market volatility index	market	≥ 25 / 35	14	green

0 red, 0 amber:business as usual

Indicators reviewed in the daily liquidity report.

Market indicators turn first in a market-wide stress, own-name indicators in a name-specific one. The LCR is a slow indicator here: it is still above 100% on day 3, while the deposit outflow and the rollover rate are already red.

2. Who decides

A plan names who can invoke it, and an alternate for each key role, so that a crisis on a holiday weekend is not stuck waiting for one person. Escalation moves decisions up as triggers are breached. On day 3 of the combined stress, the bank's dashboard shows 7 red and 1 amber.

ExploreEscalation at RiskAtoms Bank

Click a box to see what happens there.

Monitor

The treasury reports the indicators, the buffer and the stress test results every day. Breaches of an amber trigger are explained in the daily report.

3. The actions menu

The core of the plan is a menu of actions, each with how much it raises, how soon and at what cost. Run each one alone against the combined stress:

Action	Starts	Effect by day 90	Cost (90 days)	Survival, days
Central bank borrowing	day 2	£4.20bn cash	£5.1m	90+
Slow new lending	day 3	£0.59bn less outflow	£1.5m	52
Dearer savings rates	day 2	£1.11bn less outflow	£24.4m	60
Mortgage repo	day 15	£1.95bn cash	£6.0m	75
Loan sale	day 30	£0.94bn cash	£60.0m	61
New bond issue	day 10	not available	–	47

Three lessons stand out. Collateral already at the central bank is the fastest money. The book has £6bn of mortgages pre-positioned with a 30% haircut: £4.2bn from day 2, at an illustrative 0.5% a year over the market rate, and on its own enough to reach day 90. The risk is stigma, not price. Speed matters as much as size. The loan sale raises £0.94bn but only on day 30, and costs £60m in discount; the mortgage repo needs two weeks to package. Some actions are not there in your own stress. A new bond would be the cheapest term money in normal times, but in a name-specific or combined stress the market is shut to the bank. Raising savings rates by one percentage point cuts the 30-day run-off of instant-access savings from 30% to 22%, but is paid on the whole balance; slowing lending to 20% renewals costs little now and the franchise later.

Sort itCan the plan count on it in a combined stress?

Sort each source of cash: something the plan can rely on, or something it should not count on when the bank's own name is in doubt.

Borrowing from the central bank against loans pre-positioned last year
Issuing new senior unsecured bonds next week
Repo of unencumbered gilts with the central bank or the market
Pledging mortgages the central bank has never reviewed
An unused committed facility from another bank with a material adverse change clause
Slowing new lending to customers

4. Proving it works

A plan nobody has rehearsed is a hope. The Basel principles ask for regular testing of operational feasibility, including whether cash and collateral can really be moved across entities and borders, a review after each exercise, and an update at least every year for the board's approval. Tests range from a desk-top walk-through to small live transactions: actually borrowing a little at the central bank, actually moving collateral. US banking agencies issued updated guidance in July 2023, after SVB, asking banks to keep actionable plans, to include the discount window in them, and to test their access to contingent funding regularly.

The formal version

Write the book's daily path from L3.5.05: Liquidity stress tests and survival horizons as cumulative net outflows $C_t$ against capacity $K$ . A plan adds actions $a$ that either bring cash $x_a$ from day $d_a$ , or change the scenario $s$ into $s_a$ from day $d_a$ :

\begin{aligned} H_t &= K + \sum_{a\,:\,d_a \le t} x_a - C_t(s, \text{plan}) \\ C_t(s, \text{plan}) &= \sum_{\tau=1}^{t} \big(\text{out}_\tau - \text{in}_\tau\big), \quad \text{each day's flows from the scenario in force that day} \\ \text{survival} &= \min\{t : H_t < 0\} - 1 \qquad (90 \text{ if never}) \\ \text{cost} &= \sum_a \text{cost}_a, \qquad \text{test: } \min_t H_t \ge R \end{aligned}

$R$ is a reserve the plan should keep free: here the intraday reserve from L3.5.09: Intraday liquidity, £3.11bn, the 99th percentile day of payments. Each action is judged on three numbers, how much, how fast and how dear, and a fourth, whether it exists in the scenario at all.

Try it

Choose a scenario and a set of actions. The chart shows headroom over the 90 days with and without the plan, against the intraday reserve.

Try itBuild a contingency funding plan

Stress scenario

Actions in the plan

Headroom, no actionsHeadroom with the planIntraday reserve (L3.5.09)

Survival47 days (from 47)

Cost over 90 days£0.0m

Cash raised£0.00bn

Outflows avoided£0.00bn

Lowest headroom−£2.96bn

Keeps the intraday reserve freeno

Speed matters as much as size: a loan sale that arrives on day 30 cannot save a bank that runs out on day 20. The bond issue counts only in the market-wide stress; when the bank's own name is in doubt its market is shut, so a plan that relies on it fails exactly when it is needed.

Worked example

A plan for the combined stress

The treasurer's plan, built one action at a time

Step 1 of 5

1
The problem
Combined stress: capacity £13.89bn, survival 47 days, £2.96bn short by day 90. The plan must reach day 90 and keep £3.11bn free for payments throughout.

What the treasury notes

Combined stress plan: central bank drawing (day 2, £4.2bn), savings rate up one point (day 2), mortgage repo (day 15, £1.95bn). Survives 90 days, lowest headroom £4.30bn against an intraday reserve of £3.11bn, cost £35.5m. Test the central bank drawing and the repo documentation this quarter.

Regulatory lens

Basel. Principle 11 of the 2008 Principles for Sound Liquidity Risk Management and Supervision requires a formal CFP. The supporting guidance asks for a diversified set of viable, readily available and flexibly deployable measures, with the amount expected from each source and its lead time; integration with the bank's stress tests; named roles, including who can invoke the plan; plans that reflect central bank lending programmes and collateral rules; and regular testing, with a review at least every year for the board's approval.

UK. The PRA's SS24/15 strongly encourages firms to combine the liquidity contingency plan with the recovery plan, expects robust levels of collateral pre-positioned at the Bank of England, and says the Discount Window Facility is not a last resort, though firms should not rely on it for routine liquidity management. US. The July 2023 interagency update asks banks to maintain actionable CFPs for a range of stresses, include the discount window in them and test contingent funding sources regularly. The ILAAP, of which the CFP is part, is in M4.5: Liquidity and IRRBB regulation; behavioural models for stress outflows in M6.7: Liquidity, ALM and behavioural models.

Spark Atoms

Spark AtomThe test nobody had run

The Federal Reserve's review of SVB found a bank that had failed its own liquidity stress tests and had no workable plan to raise money in a stress. Cash was in the balance sheet, in securities; the problem was turning it into money fast enough. That is why post-2023 guidance talks about operational readiness: doing a small test borrowing, not just writing that the facility exists.

Spark AtomNot a last resort

Banks have long been reluctant to use central bank facilities for fear that the market would find out. The Bank of England's answer, in the PRA's supervisory statement, is to describe the Discount Window Facility as not a last resort, and to expect banks to keep collateral pre-positioned so that using it is ordinary, fast and routine to operate.

Key takeaways

A contingency funding plan turns a survival horizon into actions: early warning indicators, escalation, an actions menu, roles and communication.
Judge every action by how much it raises, how fast, at what cost, and whether it exists in that scenario at all.
Pre-positioned collateral is the fastest money: £4.2bn from day 2 takes the bank from 47 days to beyond 90 on its own.
The combined stress plan (central bank, savings rate, mortgage repo) keeps £4.30bn of headroom, above the £3.11bn intraday reserve, for £35.5m.
Actions that need market access fail in the bank's own stress; a plan that has not been tested is a hope.

Reaction

Check what stuck

Question 1 · objective 2

A bank has pre-positioned £5bn of mortgages at its central bank, which lends against them after a 25% haircut. How much can it borrow, in £bn?

£bn

Question 2 · objective 3

In a name-specific stress, why should a CFP not count on issuing a new senior bond to raise cash?

ABecause bonds cannot be issued in sterlingBBecause when the bank's own name is in doubt, investors will not buy its new unsecured debt at any sensible priceCBecause bonds take five years to matureDBecause the LCR forbids new issuance

Question 3 · objective 2

To slow a run, a bank pays 1 percentage point more on £8bn of instant-access savings for 73 days. What does it cost, in £m?

£m

Question 4 · objective 2

The bank sells £500m of corporate loans at a 7% discount. How much cash does it raise, in £m?

£m

Question 5 · objective 4

Which statement about testing a contingency funding plan is right?

AA plan approved by the board does not need testingBIt should be tested regularly, including whether cash and collateral can actually be moved, and reviewed at least annually for board approvalCTesting means running the LCR once a monthDOnly the central bank may test it

Glossary

Contingency funding plan: Contingency funding plan: a bank's written plan for a liquidity stress: how it will spot one early, who decides what, and which actions will raise cash or slow outflows, how much, how fast and at what cost.
Early warning indicator: Early warning indicator: a market or bank-specific measure, with set trigger levels, that signals rising liquidity stress before the buffer is used up.
Escalation: Escalation: the agreed steps by which a breached trigger moves a decision up from the treasury desk to a crisis committee, the board and the supervisor.
Counterbalancing capacity: Counterbalancing capacity: the cash a bank can raise in a stress from its own resources: the buffer, plus any further actions it can rely on in that scenario.
Pre-positioning: Pre-positioning: placing loans or securities with the central bank in advance, with the legal and operational work done, so the bank can borrow against them at short notice.
Discount Window Facility: Discount Window Facility: the Bank of England's facility lending to banks against a wide range of collateral, including pre-positioned loans, for a fee.
Stigma: Stigma: the fear that borrowing from the central bank, if it becomes known, will be read as a sign of weakness and make the run worse.
Testing: Testing (a fire drill or simulation): rehearsing the plan, from invoking it to moving collateral and borrowing, to prove that each step works and how long it takes.

Deep Dives & Origins

Deep Dives

Basel Committee on Banking Supervision, Principles for Sound Liquidity Risk Management and Supervision, September 2008, Principle 11. Intermediate.
Board of Governors of the Federal Reserve System, Review of the Federal Reserve's Supervision and Regulation of Silicon Valley Bank, April 2023. Introductory.

Origins

Basel Committee on Banking Supervision, Principles for Sound Liquidity Risk Management and Supervision, September 2008 (Basel Framework consolidated guidelines, LQY10.58 to 10.68, 10.78, 10.120 to 10.132).
Board of Governors of the Federal Reserve System, review of the supervision of Silicon Valley Bank, key takeaways, 28 April 2023.
Federal Deposit Insurance Corporation, FIL-39-2023, updated guidance on liquidity risks and contingency planning, 28 July 2023 (an addendum to the interagency policy statement on funding and liquidity risk management, issued with the Federal Reserve, the NCUA and the OCC).
Prudential Regulation Authority, SS24/15 The PRA's approach to supervising liquidity and funding risks, October 2025 version.

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