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 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