The COVID-19 outbreak has left us in uncharted waters, with the ultimate effects on the global economy and the banking industry still unknown. However, the resolution framework put in place after the financial crisis means we have a steadier hand on the tiller. Good planning, the basis of all crisis preparation, helps us to navigate the way forward. And, despite the current uncertainty, the 2020 resolution planning cycle is well on track.

Resolution planning is about being prepared to deal with failing banks in a controlled way, in order to protect taxpayers and keep providing critical functions to the economy while preserving financial stability. That’s why resolution plans are updated on an annual basis taking into account changes in the market and in banks themselves, to make sure that there are ready-to-go plans that can be immediately operational if needed.

The goal is to ensure that, even if a bank fails, the financial sector remains stable and can keep lending to business and households. Beyond an active role in crisis times, resolution planning will also lead to a banking sector that is better prepared to prevent a crisis and provides incentives for sound bank lending.

The 2020 cycle brings all the banks under the SRB’s remit into the same 12-month timetable for the first time. This is in line with the new Banking Package (BRRD2/SRMR2), but it will also ease the process for banks, improve transparency and the quality of resolution plans.

When it comes to data reporting for resolution planning, a one-size-fits-all approach doesn’t work, given the complexity and diversity in business models.  Our reporting requirements include standardised and tailored requests. As a result, our approach to helping to mitigate the effects of the COVID-19 outbreak also reflects this two-fold approach. I’d like to recognise the efforts made by the banking industry to provide the necessary data for the planning cycle, even while facing the current challenges.

The main standard reports needed for updating and improving resolution plans are: the liability data report (LDR); the critical functions report (CFR); the financial markets infrastructure report (FMIR); and the Commission Implementing Regulation (CIR) reports. Banks have submitted almost all of their liability data reports, which allow us to calculate MREL requirements. This is particularly important as the decisions on MREL targets taken in this cycle will be in line with the Banking Package. This means that, according to the transition period in SRMR2, the first binding intermediate target must be complied with by 1 January 2022 and the final target by 1 January 2024.

Most banks have also submitted the other information already. Where needed, due to the current crisis, some banks have been given leeway in reporting deadlines (see our recent letter to bank CEOs). It is a good sign that there have not been many such requests from the banks in our remit, which are the largest in Europe. It shows that they are well prepared to continue such operations, even in such a large adverse shock.

Updating and continuously improving resolution plans is a shared effort. As well as the contribution of banks themselves, national resolution authorities play a crucial role in the internal resolution teams (IRTs) that will analyse the data and prepare draft plans over the next months. The cycle will end on 31 March 2021, when the MREL target approval process – including a right-to-be-heard procedure with banks – and resolution plans are finalised.  Afterwards, the MREL target decisions and excerpts of the updated resolution plans are communicated to the banks.

While the 2020 planning cycle is well under way, we still need to see progress in resolvability overall. We are calling on banks to continue their good work and to invest time and resources in this important aspect for the functioning of financial markets and economies – making resolvability part of their DNA. Our recently published ‘Expectations for Banks’ documents sets a phased roadmap towards achieving this.

We know that we will not see plain sailing in the economy for some time, but this work sets a firm course towards a financial system that is better able to cope with bank failure. This crisis shows us just how much we need banks to channel resources to support the real economy. We need all hands on deck to maintain financial stability and help support the economic recovery.