The Single Resolution Board published guidance on solvent wind-down of derivatives and trading books in resolution, the annual work program for 2022, and the minimum requirement for own funds and eligible liabilities (MREL) dashboard for the second quarter of 2021. The dashboard shows that the average MREL shortfall including the combined buffer requirement (CBR) reached 0.56% of the total risk exposure amount (TREA) (or EUR 39.7 billion) for resolution entities, reducing from the value of 0.59% (or EUR 41.5 billion) TREA in the first quarter of 2021. Also, the average MREL final target including the CBR amounted to 23.59% TREA for non-resolution entities while the average MREL shortfall including the CBR stood at 2.16% TREA or EUR 42.8 billion.
The guidance on solvent wind-down of derivatives and trading books in resolution is in line with the Expectations for Banks document, which was published in April 2020. Solvent wind-down is an approach that can be used for exiting trading activities in an orderly manner and avoiding posing risks to financial stability. The lack of a credible solvent wind-down plan could jeopardize the credibility and feasibility of the resolution strategy of any bank with material trading books. The guidance was developed following work at Financial Stability Board level, surveys, a pilot exercise and consultation with global systemically important banks (G-SIBs). It applies to all banks with material trading books. The application of this guidance is specific to each bank and it may be adapted to individual situations in a proportionate manner. The guidance sets out the scope and minimum expectations for solvent wind-down planning and potential execution, with the main objectives to:
- adequately prepare, develop and maintain bank capabilities for the planning of a solvent wind-down in resolution
- to ensure execution capabilities of the solvent wind-down plan in a reasonable timeframe
As part of the work program for 2022, SRB plans to work on enforcing and operationalizing the guiding principles laid down in the SRB Expectations for Banks and the MREL policy. SRB priorities lie in five strategic areas, in line with the 2021-2023 Multi-Annual Program. The focus for the year ahead will be on achieving resolvability of SRB entities and less significant institutions; fostering a robust resolution framework; carrying out effective crisis management, operationalizing the Single Resolution Fund, with the Common Backstop set to enter into force in early 2022; and establishing a lean and efficient organization. In terms of achieving resolvability, for 2022, the common priorities are liquidity and funding in resolution; separability and reorganization plans; and management information system (MIS) capabilities. In addition, SRB has addressed banks with bespoke priorities, to steer each bank’s progress toward resolvability. SRB also plans to update and enhance the MREL policy by reviewing the no-creditor-worse-off (NCWO) approach; implementing upcoming European Banking Authority (EBA) regulatory technical standards timely into the SRB policy; and reviewing the MREL calibration for transfer strategies. SRB plans to expand the policy work on Financial Continuity by introducing the operational guidance for the assessment of the identification and mobilization of collateral for the resolution planning cycle of 2022.
- Press Release on Guidance
- Guidance on Solvent Wind-Down (PDF)
- Press Release on Work Program
- Work Program for 2022 (PDF)
- Multi-Annual Work Program (PDF)
- Press Release on MREL
- MREL Dashboard (PDF)
Keywords: Europe, EU, Banking, Resolution Planning, Banking Union, Resolution Framework, Solvent Wind Down, Guidance, EDIS, MREL, Regulatory Capital, Basel, Work Program, Common Backstop, SRB
Previous ArticleMAS Revises Notices on Risk-Based Capital Adequacy Requirements
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.