Featured Product

    SRB Publishes Overview of Resolution Tools Available in Banking Union

    March 01, 2021

    SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution. The overview also covers the resolution framework and the relevant legal provisions supporting continued access to financial market infrastructure services in resolution. The Single Resolution Mechanism Regulation (SRMR) and Bank Recovery and Resolution Directive (BRRD) grant SRB and the national resolution authorities with specific powers and resolution tools to ensure that the entities under their remit are resolvable. The overview explains that resolution authorities in the Banking Union have four resolution tools at their disposal—namely, bail-in, sale of business, bridge institution, and asset separation.

    The following are the key highlights of the resolution tools and their potential impact on financial market infrastructures:

    • Bail-in Tool—This tool allows resolution authorities to cancel, reduce, and/or convert capital and eligible liabilities, with a view to absorbing losses and recapitalizing the institution. An indirect effect on financial market infrastructures, unrelated to the membership/participation of the bank in resolution, may result from the write-down or conversion of securities issued by the bank that other counterparties post as collateral to the financial market infrastructure. Similar effects can be expected in case of bilateral exposures between banks secured by securities issued by the bank in resolution and bailed-in. This may impact the activity of any triparty or securities financing transactions offered by financial market infrastructures.
    • Sale of Business tool—This tool allows resolution authorities to sell all or parts of a failing entity to one or more purchasers without the consent of the failing entity’s shareholders or any third party. In the scenario where the purchaser would buy assets only, and not take over any of the activities of the bank, the remainder of the bank including the contractual relationships with the financial market infrastructure may be subject to another resolution tool or wound down under normal insolvency proceedings. The fact that the financial market infrastructure's member has been purchased and belongs to a new group is likely to have consequences on the external rating provided by rating agencies and/or the internal rating established by the financial market infrastructure for the entity. This is not expected to have an impact on participation or membership. In case the financial market infrastructure takes credit or liquidity risks on its participants or members a rating change may impact the level of exposures that the financial market infrastructure would be willing to bear, or the collateral that they may accept.
    • Bridge Institution tool—This tool allows resolution authorities to transfer instruments of ownership or assets, rights, or liabilities of a failing entity to a bridge institution without the consent of the failing entity’s shareholders or any other third party. The fact that the financial market infrastructure member has been transferred to a bridge bank may have consequences on the external rating provided by rating agencies and/or the internal rating established by the financial market infrastructure for the entity. In case financial market infrastructures take credit or liquidity risks on their participants or members, a rating change may have an impact on the level of exposures that the financial market infrastructures would be willing to bear, or on the collateral that they may accept. For the remainder of the bank in resolution, which may be wound down under normal insolvency proceedings, there is the possibility that certain financial market infrastructure participations or memberships would be suspended or terminated following the liquidation of part of the bank’s activities.
    • Asset Separation Tool—This tool allows resolution authorities to transfer assets, rights, or liabilities from a failing entity or a bridge institution to an asset management vehicle without the consent of the failing entity’s shareholders or any other counterparty. Typically, this tool would be used to isolate non-performing loans of the failing entity by moving them into a vehicle where they can be managed as efficiently as possible. A priori, the asset management vehicle is not designed to hold a banking license and is not expected to need access to an financial market infrastructures (though it may need indirect access through a Clearing Member to manage its outstanding positions).

    During resolution planning, resolution authorities identify, for each bank, a preferred resolution strategy and, where necessary, one or more variant strategies. The resolution strategy comprises the resolution approach (multiple points of entry or single point of entry) as well as a preliminary view on the set of tools that resolution authorities expect to use in case of resolution. Resolution authorities may select different tools at the time of resolution, depending on the circumstances. 

     

    Related Links

    Keywords: Europe, EU, Banking, Banking Union, Resolution Framework, Bail-In, Financial Market Infrastructure, SRMR, BRRD, Resolution Planning, FMI, SRB

    Related Articles
    News

    PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK

    PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.

    April 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Standards on Methods of Prudential Consolidation

    EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).

    April 15, 2021 WebPage Regulatory News
    News

    EBA Updates List of Other Systemically Important Institutions in EU

    EBA updated the list of other systemically important institutions (O-SIIs) in EU.

    April 15, 2021 WebPage Regulatory News
    News

    BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks

    BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.

    April 14, 2021 WebPage Regulatory News
    News

    UK Authorities Welcome FSB Review of their Remuneration Regime

    UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.

    April 14, 2021 WebPage Regulatory News
    News

    PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators

    PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.

    April 14, 2021 WebPage Regulatory News
    News

    MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5

    MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.

    April 14, 2021 WebPage Regulatory News
    News

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.

    April 14, 2021 WebPage Regulatory News
    News

    OSFI Proposes to Enhance Assurance Expectations for Basel Returns

    OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.

    April 13, 2021 WebPage Regulatory News
    News

    ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks

    ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.

    April 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6858