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.
- 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
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.
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
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