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Integrated approach for consolidated banking groups
For consolidated banking groups, individual or local Recovery Plans are completely integrated into the global/group Recovery Plan in dedicated chapters. Requiring separate Recovery Plans at the entity level for consolidated banking groups is contrary to their centralised capital and liquidity management and EBF is therefore opposed to this proposition. Globally active banks take advantage of optimal pricing and distribution of investments across borders. Initiatives designed to protect local jurisdictions risk creating trapped pools of capital and liquidity which impair the group wide operational model for internationally active banks. It is of the utmost importance that the recovery and resolution planning shall mirror the organisational structure of a banking group. It is important that the RRP requirements do not jeopardise regional financial stability, and eliminate the benefits from having diversified financial organisations.
The importance of confidentiality
Information contained in RRPs will be highly commercially sensitive for the financial institution and potentially provide a “take-over blueprint". It must be absolutely clear that the information in a Recovery Plan is confidential and strictly only accessible to the firm and authorities within its core college of supervisors and resolution college. Special care needs to be taken with regard to the flow of information across borders. The EBF would welcome guidelines for supervisors on how to handle confidential information across borders.
Clear separation between Recovery and Resolution
In many instances EVF considers that the scope of the required information has more to do with the resolution plan than with the Recovery Plan. The level of information requested for recovery planning should be proportionate to the fact that in recovery a banks’ management remains in control. As requested by the FSB in its Key Attributes’ appendixes, sensitive and detailed information should therefore be provided in the framework of resolution planning, not recovery.
Scenarios and recovery measures
There cannot be any automatic or pre-determined implementation of recovery actions. Firstly, it is impossible to predict exactly the scenario that will materialise; secondly, linking, for instance, five or 10 scenarios to more than 10 recovery options would lead to a very huge number of potential combinations, which would be both futile and costly to formalise; thirdly, automatic triggers of recovery measures would hinder the flexibility of the bank’s management which need to be preserved.
In EBF's view, the best approach to recovery planning is on the one hand to identify a large number of credible recovery options, so as to be able to respond to different types of crisis (idiosyncratic vs systemic; affecting retail business vs investment banking; immediate shock or more protracted shock), and on the other hand to assess what kinds of scenarios seem most realistic in the current environment; however it is not about linking the two parts.
Level of detail
The level of detail in the RTS is very high. It should be more principles-based. The Recovery Plan is primarily designed to be operationally functional for the institution as the management retains control of the undertaking in a recovery phase. A Recovery Plan must therefore be flexible and should not stipulate in advance and in too much detail which measures to take in a given situation. If the plan is initiated the individual options may be elaborated on in more detail depending on the specific situation.
Proportionality
The RTS does not fully respect the proportionality stated in the Directive. Small institutions should not be obliged to draw up very large Recovery Plans. In this context, it is not clear whether the draft RTS cover Recovery Plans that are subject to simplified obligations as described in Article 4 of the Bank Recovery and Resolution Directive.
Associated costs and implementation
The Recovery Plans should be designed in a prudent and flexible manner, in order to minimise the potential costs. It should be guaranteed that in terms of costs, those limits are not reached. The implementation period should take into account the complexity related to the requirements. EBF estimates the need of a two-year implementation period after the final approval of the Bank Recovery and Resolution Directive.