SRB Issues Guidance on Liquidity and Funding in Resolution
SRB published new guidance on liquidity and funding in resolution. The guidance focuses on the first dimension of the SRB Expectations for Banks—that is, the estimation of liquidity needs— and aims to enhance banks’ resolvability and preparedness for a potential resolution. Banks will be assessed on this element in the 2021 resolution planning cycle. In 2022, SRB will issue further guidance for the two remaining elements in the SRB Expectations for Banks, which will be phased in over the next years.
The guidance was developed to support banks’ first-time implementation of the liquidity policy in the 2021 resolution planning cycle and will be updated over time, as deemed necessary. In line with the scope of the SRB Expectations for Banks, this guidance is aimed at banks under direct SRB remit, for which the strategy is resolution. While the guidance is general in nature, its application to each bank may be adapted to individual specificities based on a dialog between each bank and its internal resolution team, taking into account the proportionality principle. This guidance is structured into the following sections that cover the key areas that will constitute the benchmark for assessment in 2021:
- The first section focuses on the identification of key liquidity entities and main liquidity flows in resolution. Banks are expected to identify their key liquidity entities in resolution and to explain why these entities are expected to be relevant for liquidity in resolution, or not.
- The next section focuses on the assessment of the key drivers of the liquidity position in resolution. Banks are expected to include, in their assessments, an explanation of the methodology used for assigning the scores and a description of the evolution of the magnitude of each liquidity driver over the time horizon considered. To identify the key drivers of the liquidity position in resolution, banks can build on the risk identification performed in the Internal Liquidity Adequacy Assessment Process (ILAAP) and in the recovery plan. However, banks are expected to consider how risks identified in a going concern framework will change in a resolution scenario, reflecting the effects of the failure of the bank and the resolution actions.
- The third section focuses on the methodologies for estimation of liquidity position in resolution.
- The final section provides guidance for the implementation of the scenario analysis to performed in 2021.
Related Links
Keywords: Europe, EU, Banking, Resolution Planning, Liquidity Risk, Resolution Framework, Liquidity in Resolution, SRB
Featured Experts
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
OJK Circulars on Business Plans for Commercial and Islamic BanksRelated Articles
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
