SRB published guidance outlining the expectations for how banks engaging in mergers and acquisitions (M&As) can ensure resolvability. The expectations provide more detail to banks on the information SRB may need as such cases progress. The guidance also offers insights into the potential effects on resolvability in areas such as maintaining sufficient loss-absorption and recapitalization capacity, integrating information systems, strengthening operational continuity and access to the financial market infrastructure (FMI) services, and rationalizing the new legal structure. SRB expects banks to share information on prospective corporate transactions that are likely to result in a material change as soon as possible.
As laid out in the SRB Expectations for Banks policy (which was published in April 2020), any bank engaging in M&As or other corporate transactions should contact SRB to detail their intentions. In case of a relevant M&A transaction, SRB expects banks to prepare a revised resolvability work plan respecting the overall requirements. The paper aims to raise the awareness of banks conducting M&As and other corporate transactions with regard to the potential consequences on their resolvability. Banks are expected to:
- With respect to loss-absorption and recapitalization capacity, maintain a sufficient level of capacity at the point of entry and subsidiary levels, to absorb losses in resolution, comply with the conditions for authorization, and regain market confidence post-resolution; also, review and update the mechanisms supporting the operationalization of write-down and conversion in the light of the transaction
- With respect to integrating information systems to meet data requirements, maintain, throughout the implementation process, appropriate governance arrangements and responsibilities related to data collection and aggregation, across different areas of the bank and group entities; ensure that quality assurance capabilities remain effective and that documentation supporting data collection, aggregation and validation is updated; ensure that the information necessary for resolution planning and decisions, including Minimum Requirement for own funds and Eligible Liabilities (MREL) reporting, can be delivered timely, with a sufficient level of quality; assess their capabilities to produce SRB Dataset for Valuation and the information necessary to apply the resolution tools and to develop implementation plans in consultation with Internal resolution teams (IRTs).
- With respect to strengthening operational continuity in resolution, following the completion of the transaction, revisit the assessment of risks to operational continuity and the identification and mapping of critical and essential services (including FMI services), operational assets, and key staff to the legal entities providing or receiving the services; prepare a plan to mitigate such risks by establishing insolvency-remote service companies, putting in place or amending service level agreements, (re-)negotiating resolution-resilient clauses in service contracts, and transferring licenses or purchasing intellectual property rights; revisit the FMI contingency strategy and plan.
- For rationalizing the legal structure after the operation, consider, when defining the envisaged post-transaction group structure and preparing the integration plan, potential measures to facilitate the separation of core business lines and critical functions in resolution and consider, if needed, in consultation with SRB, whether certain measures could contribute to the effective application of a Single Point of Entry (SPE) or a Multiple Point of Entry (MPE) resolution approach; also assess whether additional economic functions could become critical and ensure that their operational and financial continuity can be ensured in resolution and where applicable, when the transaction is completed, revisit business reorganization plan options post bail-in and the measures to restore long-term viability
SRB will take into account the principle of proportionality and follow a coordinated approach with supervisory authorities to avoid duplication of efforts. After the conclusion of the transaction, banks are expected to return to normal resolution planning activities, including the submission of up-to-date data in SRB resolution reports and revised documents supporting the operationalization of preferred resolution strategy.
Keywords: Europe, EU, Banking, Resolvability, Mergers and Acquisitions, Proportionality, FMI, MREL, Resolution Framework, SRB
Previous ArticlePRA Finalizes Policy on Simplified Obligations for Recovery Planning
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.