SRB Issues Guidance on Liquidity and Funding in Resolution
SRB published new guidance on liquidity and funding in resolution. The guidance focuses on the first dimension of the SRB Expectations for Banks—that is, the estimation of liquidity needs— and aims to enhance banks’ resolvability and preparedness for a potential resolution. Banks will be assessed on this element in the 2021 resolution planning cycle. In 2022, SRB will issue further guidance for the two remaining elements in the SRB Expectations for Banks, which will be phased in over the next years.
The guidance was developed to support banks’ first-time implementation of the liquidity policy in the 2021 resolution planning cycle and will be updated over time, as deemed necessary. In line with the scope of the SRB Expectations for Banks, this guidance is aimed at banks under direct SRB remit, for which the strategy is resolution. While the guidance is general in nature, its application to each bank may be adapted to individual specificities based on a dialog between each bank and its internal resolution team, taking into account the proportionality principle. This guidance is structured into the following sections that cover the key areas that will constitute the benchmark for assessment in 2021:
- The first section focuses on the identification of key liquidity entities and main liquidity flows in resolution. Banks are expected to identify their key liquidity entities in resolution and to explain why these entities are expected to be relevant for liquidity in resolution, or not.
- The next section focuses on the assessment of the key drivers of the liquidity position in resolution. Banks are expected to include, in their assessments, an explanation of the methodology used for assigning the scores and a description of the evolution of the magnitude of each liquidity driver over the time horizon considered. To identify the key drivers of the liquidity position in resolution, banks can build on the risk identification performed in the Internal Liquidity Adequacy Assessment Process (ILAAP) and in the recovery plan. However, banks are expected to consider how risks identified in a going concern framework will change in a resolution scenario, reflecting the effects of the failure of the bank and the resolution actions.
- The third section focuses on the methodologies for estimation of liquidity position in resolution.
- The final section provides guidance for the implementation of the scenario analysis to performed in 2021.
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Keywords: Europe, EU, Banking, Resolution Planning, Liquidity Risk, Resolution Framework, Liquidity in Resolution, SRB
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