EBA Examines Application of Early Intervention Measures Under BRRD
EBA published a report on the application of early intervention measures under the Bank Recovery and Resolution Directive (BRRD). The report highlights the key challenges faced by supervisors in the application of the current regulatory framework on the early intervention measures and various options for addressing them. This report follows the discussion paper that was launched in June 2020 to explore ways of enhancing crisis management tools available for competent authorities, in addition to the well-established and widely used supervisory powers laid down in the Capital Requirements Directive (CRD) and in the Single Supervisory Mechanism Regulation (SSMR).
The BRRD introduced early intervention measures to expand the existing set of powers available to supervisors when institutions are experiencing difficulties. EBA monitored the application of early intervention measures in 2015-2018 and observed their limited use across EU. Instead of resorting to early intervention measures, competent authorities often preferred to apply other pre-BRRD supervisory powers available to them. EBA investigated the reasons for these supervisory practices and, in June 2020, had published a discussion paper including its preliminary findings on the most important implementation issues in the area of early intervention measures and possible solutions on how to address them. The discussion paper on early intervention measures brought the key challenges in the implementation of the early intervention measures framework to the attention of the EU legislators and EC is currently working on revising the existing BRRD provisions on early intervention measures. The report that has been published now concludes the EBA work on early intervention measures and provides an overview of the feedback received from public consultations as well as the EBA conclusions.
The report states that EBA observed supervisory consensus on the need to eliminate existing overlaps between early intervention measures and other supervisory powers as well as on the need to remove the formal sequencing of early intervention measures specified in Articles 27-29 of the BRRD. EBA also observed that competent authorities supported the importance of amending Article 27(1) of the BRRD, which includes an example of a quantitative early intervention trigger. For early intervention triggers specified in the regulatory technical standards (for example, based on the Supervisory Review and Evaluation Process, or SREP, scores or monitoring of key risk indicators), EBA will conduct further work and amend its current guidelines on the early intervention triggers, upon finalization of the ongoing review of the BRRD.
EBA also concluded that it would be important to amend the existing Level 1 legislation that includes the example of the quantitative early intervention trigger of 1.5% above Pillar 1 capital. In its current form, it might lead to a situation where the early intervention trigger is met when institution’s capital is even below the level where competent authorities may already consider withdrawing its authorization. Moreover, the current hard trigger from Level 1 interferes with a process of setting institution‐specific early intervention thresholds for capital key risk indicators monitored by supervisors for early intervention purposes. Independently from the possible amendments of early intervention measures framework, the EBA guideline on recovery indicators, which are currently being reviewed, may clarify that in principle, institutions should be able to apply recovery options before supervisors use the early intervention measures.
Related Links
Keywords: Europe, EU, Banking, BRRD, CRD, Crisis Management Framework, Early Intervention Measures, SREP, SSM, Basel, Pillar 1, Regulatory Capital, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.