EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis
EBA published a statement on resolution planning in light of the COVID-19 pandemic. In the statement, EBA expresses its views regarding update of resolution plans, update of the minimum requirement for own funds and eligible liabilities (MREL) decisions, removal of impediments to resolvability, and activation of resolution colleges. EBA states that resolution authorities should take into account the impact of COVID-19 on banks and their business models when taking decisions on resolution plans and on MREL. In addition, resolution authorities should use and test resolution colleges as the main fora to exchange information and share decisions in these times of stress.
Through this statement, EBA aims to re-affirm that resolution planning is crucial in time of uncertainty to ensure that resolution is a credible option in case of failure. The focus of the statement is on ensuring that the current situation is effectively taken into account by resolution authorities while maintaining a through-the-cycle approach and ensuring that resolvability objectives are achieved. To the extent possible, resolution authorities should consider the impact of COVID-19 on potential credible recovery options and recovery plans, as those are being updated following a recent EBA statement on the topic. The use of updated information should not mean that public interest assessments and resolution plans should necessarily change to reflect COVID-19-related changes as those may be temporary. MREL decisions and their monitoring, to the extent possible, should reflect the most recent supervisory capital requirements while keeping in mind the fast approaching implementation of the Bank Recovery and Resolution Directive (BRRD2). In assessing whether to adjust their MREL decisions taking into account the most recent supervisory and balance sheet data, resolution authorities would need to consider the temporary nature of some data variations to adopt a through-the-cycle approach and prepare a smooth transition to BRRD2.
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Keywords: Europe, EU, Banking, Resolution Framework, COVID-19, MREL, Resolution Plans, Resolution Colleges, EBA
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