SRB published its framework for performing valuations in bank resolution. The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework. This refers to the Valuation 2 (either provisional or definitive, as the case may require) as well as Valuation 3.
The three kinds of valuation can be distinguished in the context of resolution:
- Valuation 1 (prior to resolution)—valuation required to inform the determination of whether the conditions for resolution or the write-down or conversion of capital instruments are met
- Valuation 2 (prior to resolution)—valuation required to inform the choice of resolution action to be adopted, the extent of any eventual write-down or conversion of capital instruments, and other decisions on the implementation of resolution tools
- Valuation 3 (after resolution)—valuation required to determine whether an entity’s shareholders and/or creditors would have received better treatment if the entity had entered into normal insolvency proceedings and could therefore claim under the ‘no creditor worse off’ rule (Articles 20(16)-(18) SRMR)
The framework for valuation describes what is expected from the valuer, the characteristics of the valuation report, including explanations of certain assumptions or deviations thereof, and the relationship between the implementation of resolution tools and the characteristics of the valuation. The framework aims to reduce uncertainty for both the independent valuers and the SRB, providing indications that are necessary for achieving the goals of the valuation, subsequently enhancing comparability and consistency of valuations across future resolution cases.
EBA and SRB have collaborated closely in their respective work on valuation. Additionally, EBA and SRB will continue to make progress together to define expectations toward the provision of accurate and timely information that is necessary for the performance of valuations in resolution. The Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) require that resolution authorities, before taking resolution action or exercising the power to write down or convert relevant capital instruments, ensure that a fair, prudent and realistic valuation of the assets and liabilities of the institution is carried out by a person independent from any public authority, including the resolution authority, and the institution.
Keywords: Europe, EU, Banking, Resolution, Valuations in Resolution, BRRD, SRMR, EBA, SRB
Previous ArticleEBA Single Rulebook Q&A: Third Update for February 2019
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.