Featured Product

    SRB Chair Explains Basis for Public Interest Review of Failing Banks

    July 24, 2020

    The SRB Chair Elke König discusses the rationale, process, and considerations for conducting a public interest assessment for failing banks. She explains that SRB bases the decision between resolution and normal insolvency on the public interest assessment to determine whether it is in the public interest to apply the resolution tools of SRB to a failing bank. This assessment is made in the resolution plans, which set out a preferred strategy for each bank—resolution or insolvency. However, this assessment is revisited annually and specifically when a bank is declared failing or likely to fail, taking into account the circumstances at that point. The Executive Session of SRB, the governing body that decides on the approach, makes the final determination on whether a bank should be resolved.

    The assessment looks at whether resolution can achieve one or more of the five resolution objectives better than the normal insolvency proceedings:

    • To ensure the continuity of critical functions to the economy, such as lending to small- and medium-sized businesses
    • To avoid significant adverse effects on financial stability in one or more countries
    • To protect public funds by minimizing reliance on extraordinary public financial support
    • To protect depositors covered by the Deposit Guarantee Scheme Directive, which protects deposits of up to EUR 100,000 euros, and investors covered by the Investor Compensation Scheme Directive
    • To protect funds and assets of clients

    However, she highlights that measuring some of these objectives is more complex than others and SRB is working to further deepen the analysis that underpins the overall assessment. The main plan for most banks under the SRB remit is not insolvency but rather it is resolution to safeguard the public interest. Therefore, these banks need to be resolvable and build the necessary Minimum Requirement for own funds and Eligible Liabilities (MRELaccording to the preferred resolution strategy of SRB. For banks under the SRB remit, SRB expects and plans for the use of resolution tools, as these tools enable SRB to manage the failure of a bank in an orderly way and rapidly restructure its balance sheet, or to take other resolution measures to preserve financial stability. Regardless, resolution will not offer resurrection to banks with failed or unsustainable business models. The SRB Chair points out that the public interest assessment takes into account the circumstances at the time when the bank is failing. This is done to analyze the latest economic environment as well as the situation of the bank, which will obviously have deteriorated compared to the resolution-planning phase. 

    The core task of SRB is to ensure that the banks under its remit meet all the conditions to be resolvable, including MREL issuance. SRB takes into account the idiosyncratic and systemic circumstances at the point of failure of a bank, which gives it the flexibility to properly account for the economic circumstances at that point in time. A public interest assessment may well give different results if the bank fails while the sun is shining or under storm clouds. The public interest assessment enables and requires SRB to take into account the macroeconomic and market circumstances that surround a bank’s failure, particularly when assessing against the objectives of preventing financial instability and of preserving continuity of functions that are critical to the real economy. This holds true in general, but might be specifically important when we are preparing for the potential unfolding of the COVID-19 impact on the economy and banks. 


    Related Links

    Keywords: Europe, EU, Banking, Resolution Framework, Basel, Public Interest Assessment, Resolution Planning, MREL, Regulatory Capital, COVID-19, SRB

    Featured Experts
    Related Articles

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793