Module: | MODULE B: RISK MANAGEMENT
Q457: Scenario: A bank's Contingency Funding Plan has been fully activated due to a severe systemic shock. The Asset-Liability Management Committee is executing emergency funding operations. Based on contingency planning principles, consider the following statements:
1. The Contingency Funding Plan must include a strict external communication protocol to manage public relations and prevent an uncontrollable depositor panic.
2. To ensure absolute market secrecy, the bank is legally forbidden from informing the Reserve Bank of India about the activation of its Contingency Funding Plan.
3. Internal communication protocols ensure that branch managers are thoroughly instructed on handling sudden customer withdrawals during the crisis.
Which of the statements given above is/are correct?
2. To ensure absolute market secrecy, the bank is legally forbidden from informing the Reserve Bank of India about the activation of its Contingency Funding Plan.
3. Internal communication protocols ensure that branch managers are thoroughly instructed on handling sudden customer withdrawals during the crisis.
Which of the statements given above is/are correct?
✅ Correct Answer: C
The correct answer is C. Statement 1 is correct: A massive operational component of the Contingency Funding Plan (CFP) is the External Communication Strategy.
Controlling the narrative is critical.
If the public senses a liquidity crisis, an unmanageable retail bank run will ensue.
Proactive public relations protocols are necessary to project stability and prevent panic.
Statement 2 is incorrect: Secrecy from the regulator is strictly forbidden.
Regulatory guidelines explicitly mandate that the moment a bank formally activates its CFP due to severe liquidity constraints, the Reserve Bank of India (RBI) must be notified immediately.
The central bank needs real-time visibility to monitor potential systemic contagion.
Statement 3 is correct: Internal communication is equally critical.
Frontline staff, particularly branch managers and customer service teams, must be briefed immediately with standardized internal protocols on how to handle anxious depositors, manage large withdrawal requests, and prevent localized panic from spreading.
Controlling the narrative is critical.
If the public senses a liquidity crisis, an unmanageable retail bank run will ensue.
Proactive public relations protocols are necessary to project stability and prevent panic.
Statement 2 is incorrect: Secrecy from the regulator is strictly forbidden.
Regulatory guidelines explicitly mandate that the moment a bank formally activates its CFP due to severe liquidity constraints, the Reserve Bank of India (RBI) must be notified immediately.
The central bank needs real-time visibility to monitor potential systemic contagion.
Statement 3 is correct: Internal communication is equally critical.
Frontline staff, particularly branch managers and customer service teams, must be briefed immediately with standardized internal protocols on how to handle anxious depositors, manage large withdrawal requests, and prevent localized panic from spreading.