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February 19, 2019

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. 

 

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Keywords: Europe, EU, Banking, Resolution, Valuations in Resolution, BRRD, SRMR, EBA, SRB

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