ChoudWest Bank

Liquidity Contingency Plan

June 2020

Version 1.1

© Moorad Choudhry 2014, 2018, 2022 1

Approval Record
Version Department / Committee Date of
Approval

Document Change Control

Status Version Date Author Comments
Draft 1

Draft 2

Draft 3

© Moorad Choudhry 2014, 2018, 2022 2

 1. Introduction

1.1 Background
ChoudWest Bank (CWB, or “the bank”) is a UK commercial banking entity that specialises in
lending and deposit products to retail and corporate customers. The bank is majority
shareholder owned by Mr Willy Wonka and the King of Prussia. The Bank’s registered office
is at [ ], London. The bank offers the full suite of loan and deposit products, including
secured and unsecured loans, credit cards and a current account. The bank funds its loans
by deposit taking from retail and corporate customers, via a range of deposit accounts. The
bank markets its deposit accounts via its branch network, its website and broker
introducers.
The bank’s balance sheet reflects the simplicity of its business model and product suite. This
simple structure means the bank has a finite range of management actions when addressing
the impact of potential stress events. CWB’s liquidity contingency plan (LCP) sets outs it
approach for addressing liquidity and funding shortfalls under specified stress scenarios,
with the aim of ensuring that in each scenario it would still have sufficient liquidity
resources to ensure that it can meet its liabilities obligations as they fall due, on a going
concern basis.
From a prudential risk perspective, as per the requirements set out in Chapter 12 of the
internal liquidity adequacy assessment (ILAA) part of the Prudential Regulatory Authority
(PRA) Rulebook, CWB is required to adopt strategies, internal policies, and limits on liquidity
and funding risk exposure and develop an effective LCP, taking into account the outcome of
the alternative stress scenarios that it considers as part of its regular and routine risk
management processes.

1.2 Plan structure and governance

CWB has prepared this LCP for application during any period of liquidity stress so that it can
stabilise its financial position. This document has been prepared for use by the bank’s Board
and Senior Management and complies with:

▪ Prudential Regulatory Authority (PRAP Supervisory Statement SS9/17 – Recovery

Planning; and
▪ Chapter 12 of the PRA Rulebook
Paragraph 2.93 of SS9/17 states that “firms are strongly encouraged to combine their LCP
and their Recovery Plan (“RP”) into one integrated document. This would ensure that the
firm has a coherent process for being alerted to and addressing a liquidity stress and helps
to ensure a coherent risk management framework. The PRA recognises that there may be
some instances when it is necessary to maintain separate documents (e.g., due to
requirements of local regulators), but expects this to be the exception and that any separate
documents should be consistent with each other.”
© Moorad Choudhry 2014, 2018, 2022 3
CWB has integrated its LCP into its RP document, and it is now Chapter 9 of the bank’s RP.
However the bank has also taken the decision to maintain the LCP as a standalone
document, so as to:

▪ Ensure there is a clear pathway of management action options that may be undertaken
to restore liquidity adequacy, as the process of invoking the liquidity stress part of the
RP and,
▪ To aid the Liquidity Supervisory Review and Evaluation Processes (L-SREP).

The LCP is an integral part of the bank’s operating documentation and fully aligned with the
its Strategic Plan, ICAAP, ILAAP and Recovery Plan as well as the bank’s Risk Management
Framework and Risk Appetite. The LCP is owned by the Board who have delegated
responsibility for its maintenance, testing and monitoring to the asset-liability committee
(ALCO). The LCP has been prepared by the Finance function, with input from the Treasury
function and business lines, and subject to independent review and challenge by the Risk
function. The plan is updated at least annually (or more frequently where business activity
changes or other circumstances dictate) and is reviewed and challenged by the bank’s ALCO
before being recommended for approval by the Board.

1.3 Scope
The LCP covers all liquidity and funding activities undertaken by the Bank. Capital stresses
and subsequent Recovery Options are detailed in the ICAAP and RP. This LCP:

• Allocates management roles and responsibilities and governance processes

• Outlines how a liquidity stress event may occur
• Sets out the metrics by which the bank will identify a liquidity stress event
• Documents the process by which the plan would be invoked
• Sets out the management actions that would be considered to address a liquidity
stress event
• Describes the communication strategy for both internal and external
communications
All departments and employees involved in and/or connected to the bank’s risk
management framework are within scope of the LCP.

1.4 Management roles and responsibilities

The Board has delegated oversight of the implementation of the LCP, should this be
necessary at any time, to the Treasurer. Once the Board has invoked the LCP, it will direct
that a management action team (MAT) be set up to implement the plan. The MAT will be
responsible for the day-to-day running and implementation of the plan.

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The MAT will comprise executive and senior management from across the bank and is
expected to include, as a minimum, the CEO, CFO, CRO, Treasurer, Head of Commercial
Banking and Head of ALM. If required the Treasurer may also ask that other executives,
including the COO and CTO, join the MAT.
The role of the MAT is to:
▪ Identify the appropriate LCP management actions that are most appropriate to address
the liquidity stress facing the bank;
▪ Ensure that the actions are implemented in a timely, efficient and effective manner;
▪ Monitor and report on the performance of the actions to ALCO and the Board;
▪ Manage all internal and external communications in respect of the LCP, in line with the
communications plan; and
▪ Report daily, and in due course weekly, to ALCO and the Board on plan performance
and estimated time to restoration of the relevant key risk indicators (KRI) to “green” or
business-as-usual status.
MAT meetings will be chaired by the Treasurer.

2. Liquidity stress scenarios

The bank defines a liquidity stress event as any circumstance or set of circumstances which
affects its ability to meet all liabilities as they fall due. Given the structure of the bank’s
balance sheet, a liquidity stress is most likely to occur as a result of the bank having
insufficient customer deposit balances to fund its current or future customer loans, and to
meet customer deposit withdrawals. The bank makes use of wholesale funding on its
balance sheet, but is not reliant on them as part of normal business operations. Therefore a
loss of wholesale funding is a lower possibility as a driver of funding stress for the bank.

As set out in section 3 the bank monitors a number of metrics, labelled key risk indicators
(KRIs) and early warning indicators (EWIs), in order to identify with sufficient notice when a
stress event is occurring or likely to occur in the future.
Any number of factors, or combination of factors, may create a stressed market
environment. These may be both endogenous and exogenous to the bank. These factors
include, but are not limited to:
▪ Negative “PR” about, or concerning, the bank;
▪ Withdrawal of the government’s deposit guarantee scheme;
▪ Market-wide occurrence such as failure of a systemically important bank or illiquidity in
the money markets;
▪ Failure of a bank in the bank’s peer group;
▪ Cyber attack on the bank leading to reputational impact and high volume outflow of
customer deposits.

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A stress event, irrespective of the scenario within which it takes place, is most likely to result
in the bank experiencing a combination of increased deposit account withdrawals, lower
new deposit balances (with or without the bank offering competitive market rates of
interest) and lower levels of rollover of fixed term deposits.

To address potential impact of these and other as yet unknown scenarios, the bank
conducts internal stress testing on a regular basis. As part of the liquidity adequacy
assessment process (ILAAP) it includes four stress scenarios which are modelled over a 365-
day term. There is a particular focus on the first 90 days of the stress, as this is compliant
with the Pillar 2 liquidity monitoring regime of the PRA, alongside the first 120 days of the
stress, as this is in line with the minimum survival days risk appetite of the bank (the risk
appetite is confirmed in the bank’s risk appetite framework (RAF), which is contained within
the bank’s risk management framework (RMF). This is a separate standalone document).
Results of stress tests themselves inform the bank’s liquidity risk appetite and also feed into
compliance with the PRA’s overall liquidity adequacy rule (OLAR). The stress testing process
is an integral part of the bank’s strategy and its desire to implement a robust liquidity
management process.

3. Liquidity and Funding risk indicators

The bank monitors a number of market, liquidity and funding related metrics to ensure that
it remains aware of internal and external conditions and therefore able to meet its liquidity
and funding requirements as and when required. All of the metrics are monitored using a
Red, Amber, Yellow, Green (RAYG) calibration scale (this is detailed in the RMF). If the bank
is not operating in the Green Zone there is always a possibility of a worsening liquidity
situation thereby invoking this LCP.
During BAU periods (all metrics in the green zone) the bank will be undertaking actions to
address any forecast future liquidity stresses. These actions may include realising liquidity
from the high quality liquid assets portfolio (HQLA) in order to pre-empt movement of KRIs
beyond the green or yellow zones. Such actions in themselves would not require, or
demand, invocation of the LCP unless the Tier 1 KRIs (see RMF document) had moved into
the red zone.
The exhibit below illustrates how KRIs and EWIs are integrated across the risk appetite
zones and escalation process, and is taken from the RMF. As KRIs move outside of green
there is a cross-over from BAU into ICAAP/ILAAP and if levels are not restored to green an
escalation to LCP/RP.

© Moorad Choudhry 2014, 2018, 2022 6

 Failure

Red

Amber

Yellow

BAU Recovery Plan Resolution

Increasing stress

The RMF lists in detail how liquidity and funding related metrics are designated as three
distinct risk types:

▪ Early warning indicators

Early Warning Indicator (EWI) Frequency Green Yellow Amber Red Rationale

3m LIBOR-OIS spread Daily <75 bps >75 bps >100 bps >125 bps Early warning of money market
stress or illiquidity
Percentage of fixed-term deposits Monthly tbc tbc tbc tbc Compare current to one-year
not rolled over average and trend over time
Spread paid above otherwise Monthly <50 bps >50 bps >100 bps >150 bps Early warning of firm-specific
highest customer deposit identical difficulty in raising customer
product / tenor in peer group deposits

Proportion of on-notice Daily tbc tbc tbc tbc Early warning of excessive
withdrawal balances as withdrawal of funds
percentage of total Notice Account
balances
Total Balance on Notice of Daily <7.5% <10% <13% >13% Early warning of deposit run
Withdrawal

▪ Tier 1 KRIs
Key Risk Indicator (KRI) Frequency Green Yellow Amber Red Rationale

Net Stable Funding Ratio Monthly >125% <125% <115% <105% Regulatory requirement
Customer Loan-Deposit Ratio Daily <85% >85% >95% >110% Bank's appetite for the extent of
customer surplus funding of the
balance sheet
Liquidity Coverage Ratio Daily >180% <160% <140% <120% Regulatory requirement
Survival Days Daily >180 <180 <150 <120 Bank's appetite for how long it
wishes to liquid in a stressed
"market lockout" scenario

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▪ Tier 2 KRIs
Key Risk Indicator (KRI) Frequency Green Yellow Amber Red Rationale

Available unencumbered liquid Monthly >17% <17% <15% <13% Limits encumbrance of liquid
assets as % of total balance sheet assets
Available unencumbered assets as Monthly >70% <70% <67.5% <65% Limits encumbrance of total assets
% of total balance sheet
Short-term (<1-yr) wholesale Daily <15% >15% >17% >20% Limits reliance on short-term
funding as share of total funding wholesale funding
Weighted-average tenor of Daily >120 <120 <110 <100 Maintains minimum tenor of
customer funding (days) funding profile
HQLA as % of total balance sheet Monthly tbc tbc tbc tbc Maintains minimum appetite for
size of HQLA
HQLA as % of total deposits Monthly tbc tbc tbc tbc Indicator of HQLA adequacy in
event of deposit run
Balance of Top 20 Deposit Daily <4% >4% >5% >7% Deposit concentration exposure
Customers as % of total deposits indicator
Largest exposure to a single SME Daily <1% >1% >1.5% >2% Limits exposure to single
customer depositor
Total exposure to SME customers Daily <15% <20% <25% >25% Limits concentration and exposure
with deposits over £5m (measured to large size deposits
as % of total SME balance)
Total exposure to Broker-sourced Daily <15% <17.5% <20% >20% Limits exposure to broker-sourced
funds deposits
Total Non-Bank Financial and Daily <8% <10% <12% >12% Limits exposure to LCR 100%
Professional Practice Instant stressedoutflow deposits
Access balance
Total Deposits Maturing Less than Daily <20% <22% <25% >25% Caps share of short-dated funding
90 days (by Original Product origination
Maturity)
Total Funding with tenor of 90 days Daily <20% <22% <25% >25% Caps share of short-dated funding
or less
Total Funding with tenor of 1 year Daily <80% >80% >85% >87% Caps share of sub-1 year funding
or less
Total Funding with tenor of more Daily >20% <20% <15% <13% Maintians minimum share of long-
than 1 year dated funding
Maximum Net Intra-Day Liquidity Daily TBC TBC TBC TBC Ensures permananent adequate
exposure as percentage of Central instant access cash balance
Bank cash balance
Cross-Currency Liquidity Daily TBC TBC TBC TBC Ensures exposure to FX markets is
maintained at acceptable levels
and within money market FX lines

All of the metrics are reported on a daily basis to ALCO members and attendees. The bank’s
Liquidity and Funding committee, a sub-committee of ALCO, meets on a weekly basis and
also monitors all metrics together with the rolling 26-week funding forecast and Tier 1
metrics forecast. (The Liquidity and Funding Committee Terms of Reference (ToR) is given at
Appendix II).
As stated in the escalation process described in the bank’s RMF, RAYG levels for EWIs and
Tier 2 indicators residing in red zone do not automatically trigger invocation of the LCP.

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EWI escalation process
A movement of one or more of the EWIs outside of the yellow zone will be noted by
Treasury and second line of defence (2LoD, or Risk) and reported to ALCO. If two or more of
the EWIs fall into amber zone ALCO will meet to consider whether recommending that the
Board review the LCP mechanism and invoke.

Tier 1 escalation process

If an amber zone is reached for a Tier 1 metric, the LCP trigger point is in reach and the bank
may be exposed to a liquidity crisis. Urgent remediation may be required, and ALCO must
meet immediately to address the limit breach.
Where there is a breach of a regulatory limit (this is taken to include use of a regulatory
buffer that takes the level into regulatory minimums) the Chairman of the Board must
inform the PRA immediately. This would normally be by telephone. This must be followed
by a detailed report and restorative action plan that may be by letter or email.
The red indicators for Tier 1 KRIs have been included in the LCP for completeness, as at this
time ALCO would be considering a recommendation to the Board to invoke the LCP.

Tier 2 escalation process

There is a specified escalation procedure for each of the Tier 2 KRIs yellow, amber and red
zones, as set out below:
▪ Tier 2: red risk zone
If a red zone has been reached urgent remediation is required. ALCO will meet to address
the breach, and if it is believed that the breach is an early warning for a red zone breach of a
Tier 1 KRI ALCO may agree it is appropriate for the LCP reporting protocols to be followed.

▪ Tier 2: amber risk zone

If the amber zone has been reached, approved risk appetite levels are in danger of being
breached and the bank may be operating outside of acceptable risk boundaries. The
Treasurer (or an appointed deputy) must establish the cause of the breach, how it can be
remediated and the associated timeframe and cost. This should be reported to all ALCO
members as soon as possible and no later than 48 hours. Communication may be by email
or video conference call.
If deemed appropriate, any recipient can call an emergency meeting of ALCO to discuss the
breach and the proposed remediation plan. The remediation plan may be to trigger the LCP,
in which case the LCP invocation procedures must be followed. All reports (including issue,
remediation plan and status) must be provided to ALCO and the Board on a monthly basis.
▪ Tier 2: yellow risk zone

If the yellow zone has been reached, the bank is outside the boundaries within which it
would ordinarily wish to operate, with a commensurate increase in risk exposure. Senior

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management has discretion to operate temporarily in this zone. Standard MI should
comment on actions taken, with time frames, or rationale given for no action taken, and
expected timeframe for reversion to BAU levels (green zone). ALCO will receive updates on
this within its monthly MI pack.

4. Invoking the LCP

The bank monitors the liquidity and funding KRIs and EWIs noted above on a daily basis.
These are reported in its Daily Liquidity Report in line with the RAS RAYG calibration levels.
They are also reported in the monthly ALCO pack. The daily report is sent to all ALCO
members and attendees.
In terms of actions and escalation, the standing procedure is as follows:

▪ If one or more Tier 1 indicators drop out of green status, senior management will
consider restorative actions;
▪ If one or more Tier 1 indicators drop out of yellow status and into amber, ALCO will
meet to review the situation and address corrective management action. This meeting
will review whether conditions warrant formal invocation of the LCP;
▪ If one or more EWIs move into amber status, irrespective of the status of Tier 1 KRIs,
ALCO will meet to review the situation and agree management action in response.
Note that Tier 2 KRIs, and EWIs of themselves, are not treated as automatic LCP invocation
triggers, irrespective of their RAYG status at any time, absent the RAYG status of Tier 1 KRIs.
That said they, alongside the Tier 1 KRIs, assist the bank in identifying whether a stressed
environment is imminent and providing early warning of same.
ALCO will determine, upon review of the triggering indicators and the general external
market environment, whether to recommend that the Board considers invoking the LCP. If it
does recommend invocation, the Board will meet to consider this recommendation and, if
approved, will invoke the LCP.
In summary the escalation and invocation process is:
1. The Treasurer (or any member of ALCO) becomes aware of or is informed of the status
of the Tier 1 triggering KRIs entering the amber zone;
2. An extraordinary meeting of ALCO is convened;
3. ALCO will decide whether or not to recommend invoking the LCP; if yes, it will
recommend the agreed action to the Board;
4. An extraordinary Board meeting will be called to discuss invoking the LCP;
5. If the Board agrees to invoke the LCP, it will form the MAT;
6. The MAT will implement the LCP.
If ALCO assesses that sufficient action is already being taken or that the stress situation is of
a short-term nature, it may decide that invocation is not necessary. In this case it will not
recommend to Board that it invoke the LCP. It will however still require regular updates and

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analysis on the effectiveness of the actions that are being implemented, together with a
realistic estimation owned by the Chair of ALCO and approved by ALCO of when the Tier 1
indicators are expected to revert to acceptable risk levels.

In the event of invocation, the Chairman of the Board will notify the PRA.
Invocation of the LCP will result in a number of actions, communications plans and remedial
measures being implemented to recover from the stress, or if decided by the appropriate
authorities, to move the bank into the recovery process. The Flow Chart below sets out the
management process that would be followed once the LCP has been invoked:

LCP INVOCATION PROCESS DECISION FLOW CHART

© Moorad Choudhry 2014, 2018, 2022 11

 BAU daily monitoring of Liquidity KRIs

Weekly Liquidity and Funding Group

ALCO
Senior management daily review of
performance

Any actions
required to No
address BAU new product
current or
launches / price rises
forecast?

Yes

Are any Tier

1 Liquidity No
KRIs Red?

Yes

Treasurer to
consider if
LCP invoked

ALCO /BRC / Board meeting held

LCP invoked No

Yes
PRA informed

MAT formed

MAT implements relevant initial recovery Board meets to stand

options down LCP

Yes

Are Yes
recovery Are Liquidity
options KRIs out of
working? Red zone?

No No

MAT implements additional recovery

options

Yes

Are recovery
options
working?Are there
additional
options?

No

Board meets to consider Resolution

solution

© Moorad Choudhry 2014, 2018, 2022 12

The LCP will be stood down at the point at which the bank’s Tier 1 liquidity KRIs are restored
to “green” status. The MAT will review the status on a daily basis to determine progress in
this regard. Should restoration not appear possible after a period of 90 days, the Board will
be convened to consider invoking the full Recovery Plan.
The following are relevant to the maximum period before and after the LCP invocation
process:
▪ Time-critical payments on an intra-day basis. The bank has intra-day payment
obligations arising out of certain of its customer products. On invocation of the LCP the
bank will continue to maintain an appropriate balance at its Bank of England Reserve
Account to ensure it is able to meet ongoing payment obligations with customers and
other stakeholders;
▪ Disruption in multiple payments and settlement systems: if the bank is unable to access
its clearing banks or the Reserve Account, it will be unable to continue operating. This
would reflect a severe systemic stress event, and lead to immediate review and
recommendation to invoke the bank’s Resolution Plan;
▪ Regular testing of the LCP: the bank will undertake a test of management actions stated
in the LCP on an at least annual basis. This will include a test access of cash borrowing
from the BoE Sterling Monetary Framework and Discount Window Facility (DWF).
Successful testing provides comfort to ALCO that upon any invocation of the LCP the
bank has ensured capability for immediate operational implementation.

5. Principles of selecting management actions

The bank’s LCP is incorporated as part of the bank’s Recovery Plan (RP). The LCP sets out the
bank’s policies, procedures and management action plans for responding to severe
disruption in the firm’s ability to fund itself and maintain liquidity. Timely detection of a
potential liquidity stress is critical in enabling the firm to take the necessary actions to
remediate the liquidity condition. The LCP established the framework for detection through
defined metrics and thresholds, allied with management judgement.

The bank has identified key actions that management would consider within the LCP, which
are a subset of a wider list of management actions (or “recovery options”) set out in the RP.
The LCP considers a non-exhaustive list of management actions that are likely to have the
greatest impact on the liquidity strength of the bank under stress. The management actions
that would be selected and their impact will depend on the specific circumstances of the
situation at the time. In identifying the appropriate actions to take, management will
consider the following:
▪ Speed: actions that can be implemented and take effect more quickly are preferable;
▪ Size: the larger the liquidity impact of an action the better;
▪ Reputational impact: management actions with no or little reputational impact are
preferable;
▪ Predictability: management actions with a more stable outcome are preferable;

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▪ Cost: management action with lower short-term and long-term cost impact are
preferable;
▪ Sustainability: actions that provide longer-term sustainable liquidity benefit are
preferable;
▪ Market availability: certain management actions rely upon market access. Actions with
lower reliance on external markets are preferable;
▪ Visibility: the firm may require management actions to be visible to demonstrate
recovery or non-visible to minimise reputational damage. Actions will be assessed
depending on the specific scenario and their level of visibility;
▪ Regulatory impact: management actions that have little or no regulatory impact are
preferable.

Based on these assessments, those actions that senior management consider most
appropriate to implement in the event of stress are set out in the next section.

6. LCP management actions

In the event of anticipated or actual liquidity stress impacting the bank, senior management
has identified the following actions that it can undertake to increase its liquidity resources
and maintain its liquidity and funding key risk indicators within the bank’s risk appetite.
It is assumed that prior to invoking the LCP the bank would already have accessed its high
quality liquid assets (HQLA) portfolio, possibly down to its minimum Board-acceptable level,
and would already have monetised any non-cash HQLA assets such as government bonds
and T-bills, as well as considered the utilisation of Sterling Monetary Framework (SMF)
facilities.
As the LCP is now maintained as an integral part of the RP, these actions are considered RP
recovery options for deployment in the event of liquidity, as opposed to capital, stress.
Actions are listed in the order that they would be considered by the MAT, although specific
circumstances at the time may dictate a revised order of implementation. Unless stated, all
of the actions are independent of each other and can be implemented in order or to any
degree simultaneously.

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Action Ensure the full range of Instant Access, Notice and Fixed Term Deposit accounts are
available for new and existing customers (Retail Deposits, SME Deposits)
Raise deposit rates across the term structure by 50 bps
The bank does not always have a full range of all deposit product types (Instant Access,
31-, 95- and 180-day Notice and 1-, 2-, 3- and 5-year term deposits) available for all
existing and new customers
Product All deposit product types, together with "special" deposit accounts including Bonus
Loyalty account, Monthly Saver account and Young Savers account
Timescale New products can be launched within 24 hours of a stress being identified
Value of funding The bank would expect to attract £50m of new deposits over a 4-week period at a cost of
0.5% above budgeted levels
Cost (P&L impact) Increased interest payable / lower pre-tax profit (£50m * 0.5%) £250K p.a.
LCR impact HQLA would increase by £50m Outflows would not change for 335 days
Based on our LCR (as at Oct 2021 - the last ILAAP reference point) the LCR would
increase by 16% (272% to 288%)
Capital impact The bank's total capital resources at Oct 2021 were £216m
The bank's RWA at Oct 2021 were 1299.6m
A reduction of £0.2m (post tax) as a result of raising deposits at higher than budgeted
rates would reduce total capital ratio by 0.02%
Leverage ratio impact
Constraints The value if new deposits will be driven by the price offered by the bank as well as the
type of product offered. The bank's experience has shown, consistently, that having
competitvely priced Instant Access, Notice and Term Deposits (in Top 2 of "best buy"
tables) is highly effective in attracting new funds
Preparation The bank has launched multiple products in the past

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Action Launch one-off products with individual deposit brokers
Once the stress has been identified the bank's deposit team would contact each of its
brokers to identify which of them could at this particular point offer the largest potential
deposits within a two-week time horizon
Product The product will depend on market conditions and the Broker view of customer demand,
most likely product types are Instant Access, 6-month and 1-year term deposits.
The product will be priced at at least 50 bps higher than the bank's existing budget rate
(it is assumed that the bank's budgered cost of funds is already priced in the Top 3 rates
level)
Timescale The product would be agreed and launched within 24 hours
The bank would expect to start receiving new deposits within 48 hours of launch
Value of funding Based on previous experience the bank believes it could raise £50m of new deposits in a
2-week time horizn from one broker.
Launching with multiple brokers will multiply expected deposit inflows accordingly
Cost (P&L impact) Increased interest payable / lower pre-tax profit (£50m * 50bps) £250K
LCR impact HQLA would increase by £50m Outflows would not change for 335 days.
Based on our LCR (as at Oct 2021 - the last ILAAP reference point) the LCR would
increase by 16% (272% to 288%)
Capital impact The bank's total capital resources at Oct 2021 were £216m
The bank's RWA at Oct 2021 were 1299.6m
A reduction of £0.2m (post tax) as a result of raising deposits at higher than budgeted
rates would reduce total capital ratio by 0.02%
Leverage ratio impact
Constraints At present the bank has relationships with four brokers (as at Oct 2021). It is possible to
offer exclusive products with each of these brokers and raise a total of £200m over a 2-
week period
Preparation The bank has launched exclusive products with brokers and had the appropriate approval
and governance processes ready to implement within 24 hours of a stress being
identified

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Action Increase individual deposit account limit
The bank will raise the cap on individual customer deposit balances to £25m for Retail
customers and £50m for SME customers, from the existing upper limit of £5m and £10m
respectively
Product All existing and new product issues
Timescale The customer limit can be raised within 24 hours. Specific customers whom the bank has
identified as having capacity to make additional deposits would be contacted over a
period of 2-5 days
Value of funding The bank expects to attract £50m of new deposits over an 8-week period at existing
product prices The
longer time frame recognises that customers may need to give notice to withdraw funds
from other banks
Cost (P&L impact) Impact of additional deposit balance costs at existing deposit rates
LCR impact HQLA would increase by £50m. There would be no change in outflows
Capital impact No capital impact
Leverage ratio impact
Constraints The value of new deposits will be driven by the price offered by the bank as well as the
type of product available. The bank's past experience has shown that having a
competitively priced 31-day, 6-month and 1-year deposit product is key to attracting new
deposits.
This action requires Board Risk Committee approval after comfort has been given that
AML/KYC issues are adequate where the higher limit is attracting new customer
balances. The bank may choose, depending on circumstances, to raise caps for existing
customers only.
Preparation The bank has previously raised the customer deposit limit

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Action Increase interest rate on all back book floating-rate deposit accounts
On identifying a stress event occurrence the bank's deposit team will raise the interets
rate payable on all floating-rate deposits by between 25bps and 50bps depending on
type of stress. Simultanesouly it will inform existing account customers of this raise. This
will increase deposits in existing accounts, and also reduce the amount of balance on
notice of withdrawal
Product The increase would be applied to Instant Access and Notice accounts
Timescale The rate rise would be agreed and emails / letters / SMS sent to all customers of such
accounts within 24 hours.
The bank would expect to start to receive new deposits and see reductions in balances
"on notice" within 2 days of this move
Value of funding The bank assumes that:
-- Notice account deposit balances on notice would reduce by 10% ~£20m
-- Instant Access balances would increase by £20m
-- New deposits on notice of £10m would be received
The timescale assumed here is 4 weeks
Cost (P&L impact) Increased interest payable / lower pre-tax profit £5m
LCR impact HQLA would increase by £50m
Outflows would reduce by £10m (assumed 50% of notice cancellations are within the 30-
day window).
Based on LCR as at Oct 2021 (ILAAP reference point) the LCR would increase by 45%
(272% to 317%)
Capital impact The bank's total capital resources at Oct 2021 were £216m
The bank's RWA at Oct 2021 were 1299.6m
A reduction of £m (post tax) as a result of raising deposits at higher than budgeted rates
would reduce total capital ratio by 0.%
Leverage ratio impact
Constraints The value of funding that can be obtained is constrained by the overall value and number
of floating-rate deposit accounts
Preparation The bank has successfully re-priced its floating-rate deposit accounts on many
occassions and hence has developed fit-for-purpose processes to do this under stress
and also to contact deposit account customers

© Moorad Choudhry 2014, 2018, 2022 18

Action Raising the bid level for wholesale market short-term deposits via the Money Broker
market (ICAP and Tradition)
On occurrence of a market-wide stress event, and not firm-specific or combined, the
wholesale market is potentially a source of instant funding. This may be a way to ensure
cash balances are maintained where corporate and wholesale market depositors are
withdrawing funds from banks deemed to be more "at risk" in a market-wide stress. In
theory, the wholesale markets are at risk of prolonged illiquidity during a stress event, and
not a feasible management action for the LCP for a bank such as CWB. That said, during a
market-wide stress where CWB is not impacted specifically, the bank believes that
wholesale depositors may be looking for alternative FIs to place funds with. This reflects:
(i) the Investment Grade credit rating of the bank (ii) the fact that the bank has never
suffered a firm-specific liquidity stress in its entire history
Product 3-month and 6-month deposits and CDs
Timescale The rate can be advertised by the Money Brokers immediately on instruction
Value of funding We estimate up to £100m of funding can be obtained within 1 week
Cost (P&L impact) The P&L impact will be the market yield curve rate for 3-mo and 6-mo tenors on the
balance raised
LCR impact Funds will be invested in HQLA assets
As products will be outside the LCR window the outflow level is not impacted.
Capital impact There is no capital impact
Leverage ratio impact
Constraints The value of deposits raised will depend on the prevailing market circumstances at the
time
Preparation The bank routinely raises wholesale market deposits from the following counterparty types
via Money Brokers: banks, building societies, large corporates, universities and local
government authorities. This is BAU activity hence no prior preparation is required

Action Raise deposits from the bank's shareholders

A number of the bank's shareholders maintain large cash balances with other banks and
may be willing and able to move this money to the bank in the event of a liquidity stress
event
Product Mr Willy Wonka and the King of Prussia have existing Instant Access and Notice accounts
open with the bank
Timescale Shareholders can be contacted immediately a stress event is identified and funds of up to
£100m can be made available based on previous experience raising deposits
Value of funding The bank would expect to raise a minimum of £50m of new deposits within 4 weeks at
existing deposit rates
Cost (P&L impact) No incremental cost to the P&L
LCR impact HQLA would increase by £50m. There would be no change in outflows
Based on LCR as at Oct 2021 (ILAAP reference point) the LCR would increase by 35%
(272% to 307%). This is the final impact after 4 weeks
Capital impact No capital impact
Leverage ratio impact
Constraints Raising additional deposits may not be immediate because shareholders may need to give
notice to withdraw funds from other banks
Preparation The bank has previously invited shareholders to deposit cash in its accounts

© Moorad Choudhry 2014, 2018, 2022 19

Action Access the Bank of England Discount Window Facility (DWF)
The bank has pre-positioned £150m of eligible loan assets with the Bank of England as
collateral against which it can draw ~£88m of cash. Given the bank's size the BoE has
stated that cash can be borrowed direct or via a repo of Gilts drawn from the DWF. This
facility is tested on a regular basis semei-annually.
Product -
Timescale Drawings are sam-day on request. Funds received from the DWF are for an initial period
of 30 days but can be rolled over for a further 30 days at the end of each term
Value of funding The bank currently has £150m of collateral pre-positioned with the BoE and will be
increasing this to £200m in H2 2022
Cost (P&L impact) Drawings under the DWF are charged overnight interest at Base Rate. At today's rate
this would have negative impact of ~2.4K daily on the P&L
LCR impact There would be no change to the bank's LCR as whilst the HQLA would increase by
£88m, the value of the outflows in the next 30 days would increase by a similar amount
as the assumed maturity of the DWF is 30 days
Capital impact There is no capital impact
Leverage ratio impact
Constraints The value of drawings is limited to the value of loans that have been pre-positioned with
the BoE, minus the haircut percentage against this value assigned by the BoE.
The bank has an internal limit of 25% of assets which it can encumber.
Preparation The bank has undertaken test drawings with the BoE and has proven processes in place
to ensure that any drawings from the DWF can be implemented immediately when
required

© Moorad Choudhry 2014, 2018, 2022 20

Action Increase Media/PR activity to maintain positive profile and attract new balances

Once a stress event has been identified the bank's deposits team will increase the level
of marketing and PR activity. This will be costed out of the revised budget presented
immediately on triggering the LCP (Recovery Plan)
Product The PR activity will be focused on the bank's new products introduced as part of the LCP
management actions.
Timescale The increased marketing / PR activity will begin immediately upon identifying the stress
event and triggering the LCP, and would continue daily for 30 days.
The bank expects to receive new deposits within 48 hours of starting the increased PR
activity
Value of funding The bank has assumed that new deposits of a minimum £20m (above the BAU level)
would be received in the first month
Cost (P&L impact) The marketing spend is expected to be at a level of £500K + VAT in the first month
LCR impact HQLA would increase by £20m. Outflows would not change for 335 days
Capital impact No change in capital ratios as £500K is not large enough to make a difference
Leverage ratio impact
Constraints There are no constraints other than impact on the P&L. The bank can increase Media/PR
activity significantly without materially impacting its current levels of P&L, which show
pre-tax profity pre- any stress event of over £5m per month
Preparation The bank has an existing relationship with a PR agency as part of its BAU PR activity and
therefore has appropriate processes in place to increase this acticvity

Action Reduce the pipeline of loan commitments and cancel liquidity line rollovers
The bank's loan pipeline is £155m and its committed overdraft and liquidity facilties are at
£127m as at October 2021. Further, the bank has ~$285m of contractual maturities due
each year. Reducing lending and not renewing liquidity faciltiies will provide both a capital
and liquidity benefit and enable the banks to repair the balance sheet post-stress

Product Commercial lending loan product

Timescale Three months to implement and record the balance sheet impact benefits
Value of funding Reduction of £210m in the pipeline and committed lending
Cost (P&L impact) Lower interest receivable as a result of lower loan balances and overdraft interest
receivables of ~£9.5m pa
LCR impact
Capital impact Reduction in RWA of ~£185m and all else unchanged capital ratio increase of ~2%
Leverage ratio impact The leverage ratio will be reduced by the amount implied by the reduction in RWAs by [ ]%
Constraints We estimate a period of 3 months before any reduction in pipeline and cancelling of
liquidity libe rollovers would impact the bank's liquidity
Preparation There is no pre-preparation required however we would implement Media/PR measures
given the negative customer franchise impact this move will have

The remaining two liquidity stress recovery options are deemed “higher hanging fruit” and
would be considered only after all previous actions have been exhausted and observed to
have been unsuccessful in restoring the liquidity and funding KRIs to “green”.

© Moorad Choudhry 2014, 2018, 2022 21

Action Undertake a divestment of part of the loan book (asset sale)

In theory the bank can release funding by selling assets. Specific portfolios, such as the
PBTL mortgage book or the fixed-rate corporate loan book, can be offered for sale to a
third-party. We have identified two portfolios (one of each asset class) that are seasoned
and prime grade, that can be divested.
Product PBTL mortgage book £320m
Fixed-rate corporate loan book £218m
Timescale Estimated period from initiation to sale closure 4-6 months
Value of funding Release of £538m of funding

Cost (P&L impact) Loss of interest estimated [ ]

Transaction costs estimate [ ]
Hit to capital on sale price versus origination price [ ]
LCR impact LCR ratio will change by ~[ ]% as Inflows and Outflows are impacted
Capital impact Reduction in RWAs by ~£345m will have significant impact on the capital ratio of ~[ ]%
Leverage ratio impact Leverage ratio is estimated to fall by [ ]%
Constraints This includes availability of buyers, provision of third-party service suppliers and prevailing
market conditions
Preparation Preparation documentation offering circular (legal)
Promoting the sale

Action Issuing additional share capital

As part of wider recovery options upon invocation of the RP, the bank can issue additonal
share capital to its existing investor base. This is considered an emergency action if
undertaken during a combined stress event
Product CWB Ordinary Shares
Timescale Three months
Value of funding The expectation is to issue £[ ] additional shares at a discount to prevailing market price
on a pre-emption rights basis to existing shareholders
Cost (P&L impact) TBC
LCR impact TBC
Capital impact Capital ratio will rise by [ ]% assuming all else remains unchanged
Leverage ratio impact TBC
Constraints Willingness of investors to commit more capital
Preparation Legal and documentation (OC) work
Shareholder comms

The bank has considered further potential management actions that in theory it may be able
to implement in an LCP scenario, but which it has discounted for specific reasons, primarily
due to continuing uncertainty on their feasibility in a combined stress scenario. These
include:
▪ Issuing a senior-unsecured medium-term note (MTN) to the wholesale market. The
bank has a standalone investment-grade credit rating, which facilitates accessing the
MTN market for long-dated funding. While this is relevant and viable under BAU

© Moorad Choudhry 2014, 2018, 2022 22

 conditions, it is considered unfeasible in a market-wide stress scenario, even at above-
market offered coupon rates. This is in contrast to the short-term wholesale market,
which we believe is a feasible management action in a market-wide stress;
▪ Raising EUR deposits from the bank’s SME and larger corporate customers. Due to the
reduced number of banks accepting EUR deposits from corporate customers, there is
potentially a large volume of EUR funds that may be accessed at 0%. These would be
exchanged via an FX Swap for GBP to alleviate immediate stressed market conditions.
However in the bank’s strategic plan and ALM Policy it is stated that the bank will
maintain its all-GBP balance sheet, this option has been discounted;
▪ Raising funding via a securitisation of the some of the bank’s loan assets. The bank has
undertaken a number of securitisations of both its retail and corporate loan book, and
so this is a potential source of stressed market funding. That said, we believe that
investors are unlikely to access this market in a market-wide or combined stress
scenario, and the minimum three-month time span to close a transaction, meaning that
this option is considered unfeasible;
These management actions, and their proposed order of implementation, are not “cast in
stone” and the final decision on which actions to take, whether additional unlisted actions
may be taken, and the order in which they will be undertaken, remains with the MAT at the
time of the stress event.

7. Communications plan

7.1 Overview
In the event the Board considers that the bank is experiencing a liquidity stress, and that the
actions listed in the ILAAP are insufficient to restore liquidity, it will invoke the LCP. It is
therefore possible that the breach of one or more of the LCP trigger indicators as defined in
Section 3 may already be known or partly known to shareholders, employees, the regulator,
counterparties and customers. Proactive and timely communication is deemed appropriate
in such situations, and an integrated and disciplined communications approach is required
to address each of the different stakeholders.
A well-considered communications approach demonstrates that the bank is in control and
inspires confidence. That said, short of a firm-specific news story appearing in the media,
liquidity-specific publicity is unusual under all but the most severe market stresses, and the
bank would not necessarily expect the need for a reactive response for every stakeholder in
the event that it invoked the LCP.
This section describes the approach to communications during a liquidity stress situation
and considers the different stakeholders and the possible means of communications
available to the bank. It also defines the Communications Plan to ensure that throughout
the stress period, accurate, timely and appropriate information is provided to the various

© Moorad Choudhry 2014, 2018, 2022 23

internal and external stakeholders in line with existing defined general principles of crisis
communication:
▪ Managing the tone and content of messages issued to internal and external
stakeholders is important because adverse reactions or inaccurate media publicity,
arising from poorly drafted or unplanned communications, may have far reaching
negative consequences and may cause reputational damage;
▪ All communications must be tailored to the intended audience and take into account
the interests and requirements of each stakeholder type;
▪ Responses to all enquiries relating to the crisis will be coordinated by the Chief
Customer Officer (CCO). All responses will be made media-trained Board members or
their authorised and trained staff.

How, what and to whom the bank communicates in the event of LCP invocation will be key
to the eventual outcome of the stress event. In event of invocation the responsibility to
manage the Communications Plan sits with the MAT. The MAT has delegated authority from
the Board to manage the implementation of the relevant actions and appropriate
stakeholder communications.

7.2 Key stakeholders

The communications approach aims to ensure that upon activation of the LCP, clear
channels of communication are maintained and allocation of responsibility defined. It is vital
that key stakeholders receive regular updates from CWB to ensure that should the wider RP
need to be implemented there will be no additional issues.

In creating the Communications Plan, the bank has appointed Executive leads to be
responsible for internal and external communications with stakeholders. By putting
structures in place, the bank ensures that communication will be conducted effectively in a
crisis situation.

Over and above the implementation of the Communications Plan, as part of the bank’s
commitment to clear, open and constructive dialogue with the regulator, the bank will
ensure that the PRA is kept informed of the decisions of the MAT during any liquidity stress
event, and will update it if and when required in advance of the formal triggering of the LCP.
The key stakeholders and communications messages are described in the Exhibit.

© Moorad Choudhry 2014, 2018, 2022 24

Stakeholder Stakeholder
Relevance Key Messages to be Communicated Communicator
Category Name
Shareholders Mr Willy Wonka Each owns 40% Shareholder non-executive directors are Chair
King of Prussia of the business members of the Board and therefore will Supported by the
be fully aware and involved in the bank's CEO
planned management actions.
Provide the investor organisations with
formal progress and effectiveness updates
of the management actions
Key staff Provide the The bank has a clear plan and actions CEO
(members of resource to carry agreed by the Board in order to remediate Supported by the
Exco, ALCO out customers' the liquidity stress and to return the bank HR Director
and MAT) banking to a financially stable position.
requirements The bank has a clear plan and commitment
to continue to meet its obligations as they
fall due.
Details on any changes in strategy or
changes to operational processes and
activity
Regulators PRA Provide the Keep regulators informed of the progress CEO
FCA licences and and effectiveness of management actions Supported by the
permissions to CFO and CRO
enable the bank
to operate
Media Local and national Provide a source If there is no comment in the Media, there CCO
media of information for will be no communication. Bank's PR Agency
customers which Address specific concerns.
we need to Focus on the bank's financial strengths,
ensure is membership of government deposit
accurate guarantee scheme and track record of
financial performance, including no prior
liquidity problems

Media Social media Potential impact The bank remains open for business as CCO and team
on customer usual and is confident of its stable and
perception of resilient balance sheet position
strength and
solidity of the
bank
Central bank Bank of England Provide the bank Ensure BoE is aware that the bank may Treasurer
DWF contacts with one of its need to access its DWF facility
key LCP
management
actions

Communication with regulators

The CEO will be the primary point of contact for the PRA ensuring an appropriate two-way
flow of information. The CEO will notify the PRA when key Tier 1 KRIs have breached the
LCP/RP trigger and subsequently when the LCP has been invoked, and when it needs to be

© Moorad Choudhry 2014, 2018, 2022 25

stood down. Periodically, during the LCP activation, the CEO will provide the PRA, after
Board approval, updates on the progress made with the LCP and any barriers / impediments
that the bank encounters in implementing any of its chosen management actions, along
with information on any changes to the relevant KRIs and triggers.
During activation of the LCP the CEO will liaise with the regulators on:
▪ Possible requirements or impediments related to management actions under
consideration;
▪ Coordination of any ad hoc regulatory and third-party requests regarding potential
management actions;
▪ Maintaining records of all communications with regulatory authorities and relevant
parties.

Communication with shareholders

The Chair (or CEO as alternate) is responsible for communication with the bank’s
shareholders. The two majority shareholders are represented on the Board via the
shareholder NEDs.

Communication with Media

Upon LCP invocation there is no immediate requirement to proactively communicate with
the media. However the bank has in place a standing procedure should there (i) be any
request from the media for comment on the status of the bank (ii) be any reference in the
national or local media to the bank by name. Under these circumstances the CCO will
engage the bank’s PR agency to craft responses to the media and provide comfort that the
bank remains robust and viable and that customers’ interests will be safeguarded.

Communication via social media

There is potential for news stories about the bank, particularly in a firm-specific and/or LCP-
invocation scenario, to spread rapidly and not necessarily in the firm’s favour. Therefore the
CWB Customer Relations department will proactively monitor social media and respond as
necessary should it be deemed appropriate. Under LCP invocation the bank does not intend
to announce this on social media; that said, it will monitor social media and ensure that its
engagement in this space is appropriate and proactive where necessary to manage
customer perception.

© Moorad Choudhry 2014, 2018, 2022 26

 7.3 Management of a negative market reaction (or continued negative
impact on customer franchise)
In the event that actions undertaken as part of the LCP prove insufficient to restore an
adequate liquidity position, and further RP options are considered, the bank has drafted the
following process designed to address continuing negative market reaction and/or negative
impact on franchise.
The CCO and team would undertake a proactive approach to communication with each of
its key customer and broker relationships for both lending and deposit products. The
message would be conveyed that:
▪ The bank continues to lend and accept new deposits;
▪ The bank is financially strong with capital and liquidity ratios that are being restored
above the regulatory minimum;
▪ The bank is committed to delivering against each of its brand values: personal, clear,
fast, flexible and straightforward;
▪ Address specific comments that the customer or broker may have as a result of media
comment.
The CCO will undertake a proactive communication exercise with relevant financial services
media publications. This would include:
▪ Activity dealing with any specific market concerns re CWB;
▪ Case studies of CWB loan and deposit customers;
▪ Advertisements for CWB current deposit products.
Cost of media activity will be met from existing budget.
In the Head Office local area the bank will undertake a range of community activities, to
demonstrate that it is continuing business as usual. This activity would be arranged through
the bank’s membership of London Cares. The bank’s’ PR agency will ensure that this activity
is promoted in the local and social media.
The bank’s PR agency, John Paul George Ringo Ltd, will brief national business media editors
to ensure that any coverage in the national media was accurate and where possible
promoted the bank’s brand values and competitive products.
To offset the impact of any negative market reaction the bank may need to implement the
above proactive approach over a prolonged period of time (6-9 months). During this period
the bank would increase use of its corporate PR advisors to provide the additional resource
required to manage PR activity. The cost of this is estimated at £100K over this period.

© Moorad Choudhry 2014, 2018, 2022 27

 8. Appendix I: ALM Policy
[ALM Policy to be inserted here]

9. Appendix II: Liquidity and Funding sub-committee Terms of

Reference
[Liquidity and Funding sub-committee ToT to be inserted here]

© Moorad Choudhry 2014, 2018, 2022 28