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    ECA Recommends Actions to Enhance Resolution Planning for Banks

    January 20, 2021

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism. ECA has conducted a second audit to inform policymakers and legislators about the state of preparedness of the Single Resolution Mechanism. The auditors found that the Single Resolution Mechanism has made progress over the last years, but some key elements are missing and further steps are needed in resolution planning for banks. The review concludes that SRB should put in place all relevant policies shaping resolution actions and address weaknesses in the quality, timeliness, and consistency of its own resolution planning. Other essential issues, such as funding in resolution and harmonization of national insolvency proceedings for banks, also need to be resolved by the legislators.

    ECA has conducted this second audit to address the oversight of resolution plans of SRB for less significant banks and as a follow-up of the results of the previous audit. To that end, ECA examined whether the policy framework and organizational setup were appropriate and progress had been made in terms of the quality and timing of the resolution plans adopted. The audit work took place from April 2019 to January 2020. In its review, ECA found that the policies did not yet address all relevant areas or revealed weaknesses. The policies (with some exceptions) were not addressed to the national resolution authorities for banks under their remit until August 2020, but they could serve as a point of reference. 

    The report notes that the choice of resolution tool and its effectiveness depend, among other things, on whether the substantive impediments to a bank’s resolvability have been addressed or removed. Yet, the auditors observe that SRB has refrained from determining any such impediments to date, thus failing to comply with the harmonized rules. Also, the rules on burden-sharing vary according to whether a bank is resolved or receives State aid in the context of insolvency proceedings. To enhance the preparedness of the Single Resolution Mechanism, ECA has recommended SRB to:

    • Improve its set of policies that guide the resolution planning of Single Resolution Mechanism. SRB should establish the missing policies, resolve weaknesses in existing policies and/or their application, and require internal resolution teams to apply a comply-or-explain approach when deviating from the policies established in the resolution planning manual.
    • Ensure timely adoption and full compliance of resolution plans with legal requirements. In this regard, SRB should improve the quality of the plans to achieve full compliance with the Single Rulebook as well as streamline and address the time-consuming nature of procedures, in an effort to not compromise the objective of adopting all plans in a one-year cycle.
    • Improve the organizational setup of the Single Resolution Mechanism. To improve the oversight of resolution planning at the national resolution authority level, SRB should assign sufficient staff and express clear views on the quality of resolution plans for less significant banks, where it detects shortcomings.
    • Invite the legislators to set up objective and quantified criteria for timely supervisory action. SRB and EC should approach the legislators and ECB and advocate for objective and quantified thresholds for triggering early intervention measures and reaching the decision that a bank is failing or likely to fail.


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    Keywords: Europe, EU, Banking, Resolution Planning, Resolution Framework, Single Resolution Mechanism, SRB, ECA

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