Explanation:
A Contingency Funding Plan (CFP) should be closely aligned and integrated with the bank's liquidity stress testing framework as well as its recovery and resolution plans. The scenarios used in the CFP should be consistent with those in the stress tests (making B correct). Option A is incorrect because scenarios should address both institution-specific and market-wide (systemic) risks, not solely institution-specific risks. Option C is incorrect because the primary goal during a stressed period is to generate liquidity and ensure survival (e.g., by liquidating or not reinvesting maturing assets), not to maximize profitability. Option D is incorrect because the CFP is typically invoked based on actual early warning indicators (EWIs) and real-world stress events, not hypothetical stress testing results.
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A
Liquidity stress testing scenarios are designed to focus solely on institution-specific risks and address both market (asset) liquidity and funding liquidity over short-term and prolonged stress periods.
B
Institutions should align their CFP stress scenarios to those in their liquidity stress testing framework, as well as to other frameworks such as recovery and resolution plans.
C
Contingent actions, such as maintaining investment strategies to reinvest maturing securities, should be identified in order to maximize and maintain bank profitability during stressed periods.
D
The liquidity crisis team may invoke the CFP based on a review of the markets, industry, bank-specific conditions, and liquidity stress testing results.
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