ESBG submits its response to the EBA consultation on the overall recovery capacity in recovery planning.


On 14 March, ESBG submitted its response to the consultation launched by the European Banking Authority (EBA) during mid-December on its draft guidelines which aim to harmonise the observed practices on the overall recovery capacity (ORC) determination and assessment, so as to improve the usability of recovery plans and make crisis preparedness more effective.

The objective of the ORC is to provide a summary of the overall capability of the institution to restore its financial position after a significant deterioration by implementing suitable recovery options.

In its response, ESBG firstly wanted the EBA to specify the requirements regarding the impact assessment of the recovery options and also to clarify the scenario severity. Scenarios are considered severe if they would lead institutions to the ‘near-default point’ in case no recovery options are implemented. Does this ‘near-default point’ refer simultaneously to Total SREP Capital Requirement (TSCR) and Total SREP Leverage Ratio (TSLRR) or alternatively either TSCR or TSLRR? ESBG wanted also to know whether breaching the near-default point corresponds to the Failing or Likely To Fail (FOLTF) point declared by the supervisor and the National Resolution Authorities (NRA) leading to resolution proceedings.

Secondly, ESBG underpinned a lack of level playing field for the determination of the ORC, although, setting a harmonized FOLTF point may appear fair. High reported capital/liquidity ratios of banks increase the starting point for the scenario calculation. Hence, the necessity to decrease from high capital/liquidity starting point to FOLTF point assumes a stronger degradation of the general economic conditions which leads to more severe haircuts on recovery options and a lower ORC. Therefore, this is a clear disadvantage for banks with high or increasing capital/liquidity ratios.

Finally, regarding the ORC score assessed by the competent authorities, ESBG considers that it is not realistic to fulfil all the buffers included into the recovery indicator levels after such severe crisis.

Executive SummaryFull Position Paper