EBA published report on the functioning of resolution colleges in 2019. The report sets out observations of EBA on the efficiency, effectiveness, and consistency of the functioning of resolution colleges during the year and the progress achieved in key areas of resolution planning. The report outlines key areas to be monitored in 2020, which primarily involve response to the effects of the COVID-19 pandemic. Overall, the report shows that resolution colleges continue to be an active forum for resolution authorities in the development of resolution plans for cross-border banking groups, where the intensity and quality of cooperation and dialog have also improved.
The report reflects the views of EBA on the deliverables expected from resolution authorities in the 2019 cycle; these deliverables are with respect to resolution strategy, resolvability assessment, and minimum requirement of eligible liabilities and own funds (MREL). It states that the joint decision making process generally functioned well, with decisions being taken within the prescribed timelines in 2019. The focus of most colleges has been on operationalization of the preferred resolution strategy. Going forward, the areas that require attention include operationalization of the bail-in tool, determining and planning for liquidity and funding in resolution, operational continuity arrangements, maintenance of access to financial market infrastructures, and introduction of management information capabilities to support resolution. Additionally, ensuring that bail‐in of instruments can be swiftly and efficiently executed will be essential to stabilizing groups experiencing extreme stress.
The wide‐ranging effect of the COVID‐19 crisis has the potential to diminish the financial strength of EU banks. Against this heightened risk, the role of resolution colleges in planning for execution has grown even more important. The current college cycle provides an important opportunity to test the arrangements made to‐date and to move from scenario analysis to more focused planning, based on the situation that exists. Against this background, for the 2020 cycle, EBA intends to monitor college discussion and engagement on the following aspects:
- Credibility and feasibility of preferred resolution strategy in the current environment and the analysis of alternative resolution strategies. For instance, bail‐in strategies for banks materially impacted by the crisis, with a significant MREL shortfall and an inability to issue in the foreseeable future, would need to be reviewed and alternative strategies considered. Similarly, the global or systemic reach of the pandemic may warrant consideration of the effectiveness of current plans to understand the impact of concurrent resolution events occurring.
- The extent to which supervisory authorities, finance ministries, and administrators of deposit guarantee schemes are actively involved in consideration of their respective roles. For resolution to be successful, all members of the college should engage actively and outline the approach they would expect to take within their own particular spheres of competence.
- Analysis of Written Arrangements underpinning colleges and changes arising from revised working arrangements emanating from the pandemic, including updating contact arrangements. It is considered that each college should confirm that all essential elements including back‐up plans in the event of problems, are in place. A test to ensure that all college members are contactable within reasonable timelines is proposed.
- The extent to which colleges undertake reviews of “Business Reorganization Plans.” The aim is to assess if changes are required in response to the economic effects of COVID‐19. Colleges should debate, in conjunction with supervisory authority members, if the broad outline of the plans remain relevant or if work needs to commence to alter such plans.
- Completing a resolvability assessment template. All colleges will be requested to complete a resolvability assessment template to aid in the monitoring of overall progress of key aspects of the planning process.
Keywords: Europe, EU, Banking, COVID-19, Resolution Framework, MREL, Resolution Planning, Resolution Colleges, Bail-In, EBA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleSARB Consults on Deposit Insurance Funding Model for South Africa
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.