how a company is reorganized after a negative event should be included in a contingency plan it should have procedures outlining what needs to be done to return the company to normal operations and limit any further damage from the event 
for example financial services firm cantor fitzgerald was able to resume operation in just days after being crippled by the 9 11 terrorist attacks due to having a comprehensive contingency plan in place benefits of a contingency plana thorough contingency plan minimizes loss and damage caused by an unforeseen negative event for example a brokerage company may have a backup power generator to ensure that trades can be executed in the event of a power failure preventing possible financial loss a contingency plan can also reduce the risk of a public relations disaster a company that effectively communicates how negative events are to be navigated and responded to is less likely to suffer reputation damage a contingency plan often allows a company affected by a negative event to keep operating for example a company may have a provision in place for possible industrial action such as a strike so obligations to customers are not compromised companies that have a contingency plan in place may obtain better insurance rates and credit availability because they are seen to have reduced business risks banks and contingenciesas a result of the financial crisis of 2008 and the great recession regulations were implemented requiring bank stress tests to be performed to test how a bank might handle various negative contingencies the stress tests project how much a bank would lose if a negative economic event occurred to determine if the bank has enough capital or funds set aside to survive the event banks are required to have a specific percentage of capital reserves on hand depending on the total risk weighted assets rwas these assets which are typically loans have various risk weightings applied to them for example a bank s mortgage portfolio might receive a 50 weighting meaning the bank in a negative scenario should have enough capital that s valued at 50 of the outstanding mortgage loans the capital called tier 1 capital can include equity shares or shareholders equity and retained earnings which are accumulated savings of prior years profits although there are various components that go into the tier capital ratio requirement the ratio has to be at least 6 of the total risk weighted assets 2let s say as an example bank xyz has 3 million in retained earnings and 4 million in shareholders equity meaning the total tier 1 capital is 7 million bank xyz has risk weighted assets of 70 million as a result the bank s tier 1 capital ratio is 10 7 million 70 million since the capital requirement is 6 the bank is considered well capitalized when compared to the minimum requirement of course we won t know if the banking sector s contingency plan will be adequate until another recession occurs which is a limitation of these plans since it s difficult to plan for every contingency 