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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.
