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. The results provide a horizontal overview of key characteristics of recovery plans of significant institutions and their assessments to facilitate identification of key focus points for improvements. The benchmarking exercise encompasses plans assessed by the Single Supervisory Mechanism until July 2020. The analysis is based on the recovery plan standardized reporting templates submitted in the 2019 cycle and FINREP/COREP. Overall, ECB assessed 96 recovery plans of significant institutions in the given cycle in ECB's role as the consolidating supervisor while 93 standardized reporting templates were analyzed.
In February 2021, ECB published certain key findings from the 2020 benchmarking exercise. These findings show that banks need to improve their recovery plans to adequately address the financial impact of extraordinary system-wide crises such as the COVID‑19 pandemic. One key finding is that the pandemic stress could significantly reduce the overall recovery capacity of banks, in terms of the extent to which a bank’s recovery options would allow it to recover from situations of severe financial stress. Looking at liquidity recovery capacity, wholesale funding is the most significant recovery option for most banks. If such funding became unavailable in a crisis situation, the liquidity recovery capacity would fall by 27%. The analysis showed that if a bank needed to increase its liquidity coverage ratio and wanted to mobilize 50% of its liquidity recovery capacity to do so, this would take six months in a pandemic-related scenario, compared with three months under the original assumptions.
Another key finding is that, in a severe stress scenario, banks appear to rely on a very limited number of recovery options for the bulk of their overall recovery capacity. This implies that a bank’s ability to restore its financial health could be significantly lower if one or more of the recovery options were not available. ECB Banking Supervision also found that some of the recovery indicators, which banks use to monitor their financial health, were not fully effective against the pandemic stress. Proper follow-up of an indicator breach is crucial for effective monitoring and enables banks to take more informed decisions and appropriate action to resolve the stress situation. In the light of these findings, ECB Banking Supervision plans to focus on challenging banks’ recovery options and recovery capacity as part of the recovery plan assessments in 2021.
Related Links
- Benchmarking of Recovery Plans (PDF)
- Findings from Benchmarking Exercise, February 2021
- Overview of Recovery Plans
Keywords: Europe, EU, Banking, Recovery Planning, Resolution Framework, COVID-19, LCR, ECB
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
BaFin Updates Bail-in Requirements and FAQ on COVID MeasuresRelated Articles
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
