First time SRB publishes state-of-play for resolvability across the Banking Union; Good progress made to date on key priorities, especially for larger banks
The Single Resolution Board (SRB) has today published its assessment of bank resolvability,
for the first time. The resolvability assessment and ‘heat-map’ for
2021 shows that banks have made significant progress in the SRB’s
priority areas.
The assessment is based on the information
available to the SRB during the drafting phase of 2021 resolution plans
up until the end of September 2021. It is benchmarked against the
phase-in of the Expectations for Banks, to be completed by the end of 2023.
Speaking today, SRB Chair Elke König, said “The
work put by the SRB and banks into addressing resolvability is paying
off. We have seen good progress by all banks, spearheaded by the largest
banks. At the same time, we also see clearly the areas that require
further attention in 2022 and 2023. Identifying potential issues well in
advance and making banks resolvable is key to ensuring financial
stability.”
Most of the SRB’s banks are earmarked for resolution, accounting for 97% of total exposure to risk.
In contrast, liquidation is foreseen for banks, which account for 3% of
total exposure to risk, mostly made of public development banks and
smaller banks with a specific business model.
Largest banks (G-SIIs and Top Tier banks) are
the most advanced category. Overall sound progress has been made on the
resolution capabilities that the SRB prioritised in 2020-2021. Banks
have significantly improved their ability to absorb losses and
recapitalise in the case of failure. This concerns, for all banks, the
steady build-up of their Minimum Requirement for Own Funds and Eligible
Liabilities (MREL) capacity, crucial to execute any bail-in strategy.
Most banks already meet the final MREL target
to be complied with at the end of the transition period, on 1 January
2024 and the shortfall has more than halved in two years. Progress has
also been observed in the areas of governance, loss absorption and
bail-in execution, operational continuity, access to financial market
infrastructures and communication planning. For instance, banks have
taken significant actions to be able to execute bail-in at short notice,
to maintain the continuity of their critical functions and core
business lines, and to produce the basic information required for
resolution action.
However, the assessment notes areas with room for improvement.
This relates mainly to those parts of the EfB that have been earmarked
for implementation in 2022 and 2023. Progress is needed by all banks on
the swift mobilisation of liquidity and collateral in resolution, the
further automation of the management information systems for the
purposes of valuation and resolution as well as the further
operationalisation of restructuring and separation capabilities
post-resolution.
The assessment of resolvability is a dynamic
process. Business models and banks’ operations change, as does the
economic outlook, therefore the work on resolvability and having
resolution plans ready for action does not stop. The SRB will continue
its work with banks to plan for and manage, if need be, failures, in
order to protect financial stability and public funds. The SRB intends
to publish the updated resolvability assessment annually.
SRB
© Single Resolution Board
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