Featured Product

    SRB Chair Explains Basis for Public Interest Review of Failing Banks

    July 24, 2020

    The SRB Chair Elke König discusses the rationale, process, and considerations for conducting a public interest assessment for failing banks. She explains that SRB bases the decision between resolution and normal insolvency on the public interest assessment to determine whether it is in the public interest to apply the resolution tools of SRB to a failing bank. This assessment is made in the resolution plans, which set out a preferred strategy for each bank—resolution or insolvency. However, this assessment is revisited annually and specifically when a bank is declared failing or likely to fail, taking into account the circumstances at that point. The Executive Session of SRB, the governing body that decides on the approach, makes the final determination on whether a bank should be resolved.

    The assessment looks at whether resolution can achieve one or more of the five resolution objectives better than the normal insolvency proceedings:

    • To ensure the continuity of critical functions to the economy, such as lending to small- and medium-sized businesses
    • To avoid significant adverse effects on financial stability in one or more countries
    • To protect public funds by minimizing reliance on extraordinary public financial support
    • To protect depositors covered by the Deposit Guarantee Scheme Directive, which protects deposits of up to EUR 100,000 euros, and investors covered by the Investor Compensation Scheme Directive
    • To protect funds and assets of clients

    However, she highlights that measuring some of these objectives is more complex than others and SRB is working to further deepen the analysis that underpins the overall assessment. The main plan for most banks under the SRB remit is not insolvency but rather it is resolution to safeguard the public interest. Therefore, these banks need to be resolvable and build the necessary Minimum Requirement for own funds and Eligible Liabilities (MRELaccording to the preferred resolution strategy of SRB. For banks under the SRB remit, SRB expects and plans for the use of resolution tools, as these tools enable SRB to manage the failure of a bank in an orderly way and rapidly restructure its balance sheet, or to take other resolution measures to preserve financial stability. Regardless, resolution will not offer resurrection to banks with failed or unsustainable business models. The SRB Chair points out that the public interest assessment takes into account the circumstances at the time when the bank is failing. This is done to analyze the latest economic environment as well as the situation of the bank, which will obviously have deteriorated compared to the resolution-planning phase. 

    The core task of SRB is to ensure that the banks under its remit meet all the conditions to be resolvable, including MREL issuance. SRB takes into account the idiosyncratic and systemic circumstances at the point of failure of a bank, which gives it the flexibility to properly account for the economic circumstances at that point in time. A public interest assessment may well give different results if the bank fails while the sun is shining or under storm clouds. The public interest assessment enables and requires SRB to take into account the macroeconomic and market circumstances that surround a bank’s failure, particularly when assessing against the objectives of preventing financial instability and of preserving continuity of functions that are critical to the real economy. This holds true in general, but might be specifically important when we are preparing for the potential unfolding of the COVID-19 impact on the economy and banks. 

     

    Related Links

    Keywords: Europe, EU, Banking, Resolution Framework, Basel, Public Interest Assessment, Resolution Planning, MREL, Regulatory Capital, COVID-19, SRB

    Featured Experts
    Related Articles
    News

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA

    October 08, 2021 WebPage Regulatory News
    News

    CFPB Proposes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.

    October 08, 2021 WebPage Regulatory News
    News

    PRA Decides to Maintain O-SII Buffers for Another Year

    The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.

    October 08, 2021 WebPage Regulatory News
    News

    FSB Report Assesses Implementation of Recommendations on Stablecoins

    The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.

    October 07, 2021 WebPage Regulatory News
    News

    APRA Updates Loan Serviceability Expectations for Home Lending

    In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.

    October 06, 2021 WebPage Regulatory News
    News

    CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.

    October 06, 2021 WebPage Regulatory News
    News

    EBA and EIOPA Set Out Work Priorities for 2022

    The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.

    October 05, 2021 WebPage Regulatory News
    News

    MFSA Issues Reporting Updates and Guidance for Banks

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.

    October 05, 2021 WebPage Regulatory News
    News

    EC Publishes Decision on List of Equivalent Third Countries Under CRR

    The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).

    October 04, 2021 WebPage Regulatory News
    News

    EC Rule on Contractual Recognition of Write-Down and Conversion Powers

    EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.

    October 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7552