How to Test Your Contingency Funding Plan: Tabletop Exercises & Simulation Drills

TL;DR

• SVB failed its own internal liquidity stress test (ILST) repeatedly from July 2022 onward — and also hadn’t tested its capacity to borrow from the Federal Reserve discount window since 2022. Both failures were cited in the Fed’s April 2023 post-mortem.
• OCC Bulletin 2023-25 (July 2023) requires CFPs to be reviewed and revised periodically; FINRA’s proposed Rule 4610 would require monthly liquidity stress tests for broker-dealers.
• Effective CFP testing covers three types: tabletop exercises, internal liquidity stress tests (ILSTs), and operational readiness drills (including discount window connectivity).
• Examiner expectations: scenario documentation, participant list, identified gaps, remediation items, and evidence of board or risk committee review.

Your Contingency Funding Plan is a document. Your ability to execute it under pressure is a different thing entirely — and regulators are now explicitly testing the difference.

The Federal Reserve’s April 2023 review of Silicon Valley Bank is the clearest statement of what inadequate CFP testing looks like in practice. The review found that during the final days before SVB’s failure, “operational weaknesses became apparent as it struggled to execute on its CFP.” Specifically: SVB had not tested its capacity to borrow from the Federal Reserve discount window in 2022 and did not have appropriate collateral and operational arrangements in place when it actually needed liquidity.

The bank had a CFP. It just hadn’t tested whether it worked. When $40 billion walked out the door in a single day, the gap between “having a plan” and “having an operational plan” became visible in the worst possible way.

What Regulatory Guidance Actually Requires

The regulators have been clear about what they expect. Here’s what the primary guidance says.

OCC Bulletin 2023-25 and the Interagency Policy Statement

In July 2023, the OCC, Federal Reserve, FDIC, and NCUA issued an addendum to the 2010 Interagency Policy Statement on Funding and Liquidity Risk Management — specifically on the importance of Contingency Funding Plans. The bulletin was a direct response to the 2023 bank failures.

Key requirements from OCC Bulletin 2023-25:

• CFPs should be “reviewed and revised periodically, and more frequently as market conditions or strategic initiatives change”
• Institutions must “maintain operational readiness to borrow from federal funding facilities, such as the Federal Reserve discount window” — which explicitly includes testing and confirming operational capability, not just having the paperwork
• CFPs must address a “broad range of funding sources” that can be accessed in adverse circumstances
• Applicable to all national banks, federal savings associations, federal branches and agencies — including community banks

The 2010 Federal Reserve SR Letter 10-6 remains the foundational framework. SR 10-6 established that a “formal, well-developed contingency funding plan” is a primary tool for managing funding and liquidity risk.

The 2023 addendum didn’t invent new requirements — it signaled that regulators would now look more closely at whether those plans were actually operational.

See also: FDIC FIL-23-039 — the FDIC’s companion letter on the same guidance.

FINRA Regulatory Notice 23-11 and Proposed Rule 4610

In July 2023, FINRA published Regulatory Notice 23-11, proposing a new Rule 4610 — the first dedicated liquidity risk management rule for broker-dealers.

Under the proposal, covered broker-dealers would be required to:

The proposal explicitly requires testing assumptions to be “reasonable, data-supported” — which rules out optimistic assumptions that assume funding sources will be available at normal terms during a stress event.

As of the time of writing, Rule 4610 remains a proposal pending final rulemaking. But FINRA has indicated this is a priority area, and examinations are already probing liquidity management practices even without a final rule.

NCUA Guidance for Credit Unions

Credit unions fall under NCUA Regulation §741.12 for liquidity and contingency funding plans. The NCUA guidance on CFP compliance requires CFPs to identify contingent funding sources and maintain processes for accessing them under stress — which includes operational readiness testing.

SVB: What an Untested CFP Looks Like Under Pressure

The Federal Reserve’s April 28, 2023 post-mortem (svb-review-20230428.pdf) provides an unambiguous case study in CFP testing failures.

The documented failures at SVB:

1. Repeated ILST breaches masked by assumption changes

Beginning July 2022, when SVB crossed the $100 billion asset threshold and became subject to enhanced prudential standards, the bank “repeatedly failed its own Internal Liquidity Stress Test (ILST).” Rather than fixing the underlying liquidity position, management “switched to using less conservative stress testing assumptions, which masked some of these risks.”

This is the testing equivalent of changing the passing grade rather than improving your score.

2. Discount window not operationally tested

The Fed review states explicitly: “SVB did not test its capacity to borrow at the discount window in 2022 and did not have appropriate collateral and operational arrangements in place to obtain liquidity.”

When SVB needed emergency liquidity, it couldn’t access the primary federal safety valve because it had never verified the operational mechanics worked. Collateral wasn’t properly pledged. Systems weren’t set up. The plan existed on paper; the operational capability did not.

3. Supervisory failures compounded by inadequate escalation

SVB had 31 open supervisory findings at failure — approximately triple the number of peer firms. The ILST breach should have triggered a Matters Requiring Immediate Attention (MRIA), but supervisors characterized it as merely “operational,” delaying the escalation that might have prompted corrective action.

The deposit flight was swift: $40 billion left on March 9 alone, with management expecting over $100 billion more on March 10. The bank had roughly 85% of its deposits exit in 48 hours. A CFP that had been tested — and had verified discount window access — could not have prevented the failure, but the Fed review acknowledged it “could have facilitated a more orderly resolution.”

Types of CFP Testing: What You Need to Run

Effective CFP testing combines three distinct activities:

1. Internal Liquidity Stress Tests (ILSTs)

The quantitative backbone of CFP testing. ILSTs model your institution’s liquidity position under stress scenarios, projecting cash inflows and outflows over rolling time horizons (30-day, 90-day, 1-year).

What to model:

• Deposit outflows by customer segment (retail vs. wholesale, insured vs. uninsured)
• Drawdowns on credit commitments
• Collateral calls from repo or derivatives positions
• Capacity of contingent funding sources to actually fund under stress

Common ILST failures:

• Using pre-stress assumptions for funding source availability (assuming FHLB advances at normal capacity when stressed institutions lose access)
• Not modeling idiosyncratic and market-wide stress simultaneously
• Not updating assumptions when your business model changes

Under FINRA’s proposed Rule 4610, ILSTs would need to run monthly. For banks, regulatory expectations suggest running ILSTs at least monthly as well, with results reviewed by treasury/ALCO.

2. Tabletop Exercises

Tabletop exercises test the human side of CFP execution: who makes decisions, who communicates with whom, and whether your activation criteria are actually clear enough to trigger action.

Participants:

• CFO and Treasurer
• Chief Risk Officer
• Board Risk Committee chair (at least annually)
• Business line heads for major funding-sensitive businesses
• Legal and compliance (regulatory notification obligations)
• Communications/IR (if publicly traded)

How to structure it:

1. Introduce the scenario (30 minutes before the session, or reveal at session start for realism)
2. Present the simulated timeline: T=0 (initial stress event), T+4 hours, T+24 hours, T+48 hours
3. At each timestep: who knows what? What actions are triggered? Who approves?
4. Work through the CFP activation criteria — does the event meet them? At what severity level?
5. Identify funding sources to activate and model their realistic availability
6. Test communication protocols: who calls regulators? Who notifies the board? What disclosures are required?

3. Operational Readiness Drills

This is the category SVB failed. Operational readiness testing verifies that your contingent funding sources work in practice, not just in theory.

Discount Window Connectivity Testing

• Verify collateral is properly pledged and current
• Confirm operational contacts at your Federal Reserve district
• Complete the Fedwire setup and test access
• Document successful test borrow (even $1M) and retain evidence

Most community banks have technically eligible discount window access but have never operationally tested the mechanics. Regulators specifically call this out in OCC Bulletin 2023-25 and post-SVB guidance.

FHLB Line Testing

• Confirm your advance capacity and any pre-borrowing requirements
• Verify you can actually draw within the timeframe your CFP assumes
• Document the test and the actual funding timeline

Other Contingent Sources

• Brokered CD market access: can you actually place at volume?
• Fed Funds lines: are counterparties still active?
• Repo facilities: are haircuts and margin terms still as assumed?

Designing Effective CFP Scenarios

Scenarios are the heart of meaningful tabletop testing. Regulators expect you to test across multiple scenario types.

Scenario Architecture

Each scenario should specify:

• Trigger events that activate each severity level of the CFP
• Funding source availability at each stage (with realistic haircuts — don’t assume brokered CDs are available at full capacity during an idiosyncratic crisis)
• Outflow rates segmented by deposit type: uninsured business deposits move fastest; insured retail deposits are most stable
• Management response timeline: at what stage does the board get involved?

Scenario Calibration: What SVB Taught Us

SVB’s scenario assumptions failed to account for the unique vulnerability of its concentrated depositor base — roughly 85% uninsured deposits, concentrated in a single industry cluster (VC-backed startups) that communicated rapidly through group chats and Twitter.

When designing scenarios, force yourself to ask: what’s the fastest possible outflow rate for our specific depositor profile, and have we stress-tested it? A 1990s scenario framework that assumes retail depositor stickiness doesn’t apply to a commercial bank with 90%+ business deposits.

Running the Tabletop: A 3-Hour Agenda

Pre-session (1 week out):

• Distribute scenario summary (high-level; reserve specifics for day-of to maintain realism)
• Send CFP document for participant review
• Confirm ALCO/risk committee members are present

Session structure (3 hours):

After-action documentation (within 5 business days):

• Scenario description and assumed timeline
• Participant names and roles
• Key decisions made at each stage
• Identified gaps with remediation owners and due dates
• Board or risk committee notification of results

What Examiners Look For

When an examiner reviews your CFP testing program, they’re evaluating five things:

1. Scenario coverage: Did you test both idiosyncratic and market-wide scenarios? Combined stress?
2. Assumption quality: Are your outflow assumptions realistic for your deposit profile? Did you apply realistic haircuts to contingent sources?
3. Operational readiness: Is there evidence of actual discount window/FHLB connectivity testing, not just a line item in the plan?
4. Escalation clarity: Is it unambiguous what event triggers CFP activation at each severity level?
5. Documentation: Can you show test dates, participants, gaps identified, and remediation actions taken?

A CFP test that surfaces no gaps is often viewed with skepticism by experienced examiners. Real tests find things. If your tabletop comes out clean, push harder on the assumptions.

90-Day CFP Testing Roadmap

Days 1–30: Baseline Assessment

• Pull current CFP document; flag sections that reference funding sources not tested in the last 12 months
• Schedule discount window connectivity test with Federal Reserve operations contact
• Confirm FHLB advance capacity with your member relationship manager
• Pull ILST model; review last 3 months of results against established limits

Days 31–60: Run the Tests

• Complete discount window connectivity test; document results and any collateral gaps
• Run a tabletop exercise using an idiosyncratic scenario (worst-case scenario for your deposit profile)
• Update ILST assumptions to reflect current rate environment and depositor mix
• Present results to ALCO or risk committee

Days 61–90: Close the Gaps

• Remediate any collateral or operational gaps identified in testing
• Update CFP document to reflect tested activation criteria and realistic source availability
• Complete scenario documentation and file with ALCO minutes
• Schedule next annual tabletop; add monthly ILST review to standing risk committee agenda

So What? The Test That Matters Most

The SVB failure produced one lesson that applies to institutions of any size: if you’ve never tested whether your discount window access actually works, you don’t know if your CFP works.

Stress scenarios and tabletop exercises are where compliance gets operationalized. An untested CFP is a hypothesis. A tested CFP is a capability.

For practitioners building or stress-testing their CFP: the Financial Risk Management Kit includes a liquidity monitoring framework with pre-built stress scenario templates and threshold formulas — the quantitative scaffolding your ILST needs to produce credible results.

Related Posts

• What Is a Contingency Funding Plan? A Complete Guide for Banks and Fintechs
• Liquidity Stress Testing for Your CFP: Scenarios, Assumptions & Methodology
• Contingency Funding Plan: Regulatory Requirements for Banks, Fintechs & Broker-Dealers

FAQ

How often should a bank test its Contingency Funding Plan?

Regulatory guidance doesn’t mandate a specific testing frequency, but OCC Bulletin 2023-25 requires institutions to “review and revise periodically, and more frequently as market conditions or strategic initiatives change.” Most examiners expect at least annual tabletop testing, plus ongoing liquidity stress test runs. FINRA’s proposed Rule 4610 would require broker-dealers to run liquidity stress tests monthly.

What did the Federal Reserve’s SVB review say about CFP testing?

The April 2023 Fed review found that SVB “did not test its capacity to borrow at the discount window in 2022 and did not have appropriate collateral and operational arrangements in place to obtain liquidity.” SVB also repeatedly failed its own Internal Liquidity Stress Test (ILST) from July 2022 onward, and management switched to less conservative assumptions to mask the shortfalls.

What is FINRA’s proposed Rule 4610 and how does it apply to CFP testing?

FINRA Regulatory Notice 23-11 proposed Rule 4610, which would require certain broker-dealers to conduct liquidity stress tests no less than monthly over a rolling 30-day projection window. Firms would need to notify FINRA within two business days of any stress test showing a liquidity shortfall. The rule also requires a written CFP with designated responsibilities and identified contingency funding sources.

What are the main scenarios to include in a CFP tabletop exercise?

Regulators expect testing across two main scenario types: idiosyncratic stress (problems specific to your institution — rating downgrade, large client redemptions, reputational event) and market-wide stress (systemic events affecting all institutions — rate spike, credit crunch, payment system outage). Testing a combined scenario where both hit simultaneously is considered best practice for larger institutions.

What documentation should result from a CFP tabletop exercise?

Document: the scenario tested, participants and their roles, timeline of the simulated event, funding actions triggered and their effectiveness, gaps or failures identified, remediation items with owners and due dates, and board/risk committee sign-off. Examiners will ask to see this documentation to verify testing actually occurred.

What is discount window connectivity testing and why does it matter?

Discount window connectivity testing verifies that your institution has operational access to Federal Reserve discount window borrowing — proper collateral pledged, documentation complete, systems tested. SVB’s failure to test this was specifically cited in the Fed’s post-mortem. An institution that cannot operationally access the discount window under stress has a CFP gap that can accelerate failure.