SRB published its framework for performing valuations in bank resolution. The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework. This refers to the Valuation 2 (either provisional or definitive, as the case may require) as well as Valuation 3.
The three kinds of valuation can be distinguished in the context of resolution:
- Valuation 1 (prior to resolution)—valuation required to inform the determination of whether the conditions for resolution or the write-down or conversion of capital instruments are met
- Valuation 2 (prior to resolution)—valuation required to inform the choice of resolution action to be adopted, the extent of any eventual write-down or conversion of capital instruments, and other decisions on the implementation of resolution tools
- Valuation 3 (after resolution)—valuation required to determine whether an entity’s shareholders and/or creditors would have received better treatment if the entity had entered into normal insolvency proceedings and could therefore claim under the ‘no creditor worse off’ rule (Articles 20(16)-(18) SRMR)
The framework for valuation describes what is expected from the valuer, the characteristics of the valuation report, including explanations of certain assumptions or deviations thereof, and the relationship between the implementation of resolution tools and the characteristics of the valuation. The framework aims to reduce uncertainty for both the independent valuers and the SRB, providing indications that are necessary for achieving the goals of the valuation, subsequently enhancing comparability and consistency of valuations across future resolution cases.
EBA and SRB have collaborated closely in their respective work on valuation. Additionally, EBA and SRB will continue to make progress together to define expectations toward the provision of accurate and timely information that is necessary for the performance of valuations in resolution. The Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) require that resolution authorities, before taking resolution action or exercising the power to write down or convert relevant capital instruments, ensure that a fair, prudent and realistic valuation of the assets and liabilities of the institution is carried out by a person independent from any public authority, including the resolution authority, and the institution.
Keywords: Europe, EU, Banking, Resolution, Valuations in Resolution, BRRD, SRMR, EBA, SRB
Previous ArticleBoE Governor Outlines Work on Using Technology for Bank Supervision
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.