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Single Resolution Board consultation on expectations for banks

Single Resolution Board consultation on expectations for banks

​​ESBG and its members responded recently to a consultation on the Single Resolution Board “expectations for banks". 

Below is the link to the completed questionnaire to the SRB consultation. A general outline follows, which provides ESBG's position and specific stance on certain related topics related to the consultation.


Submitted to SRB: 4 December 2020


>> .pdf of consultation response


General positions:

While many principles in the “expectations for banks" document are similar to requirements and expectations of the resolution framework of the recent past, ESBG argues that it significantly increased granularity and introduced additional actions compared to the current market practices. These requirements and this course of action must be carefully evaluated and considered in order to identify potential new compliance areas, impediments that may require resolving, and potential improvements to work already performed in recent years surrounding resolvability. ESBG will remain vigilant and continue to communicate key concerns identified by the community of association members to the EU Singe Resolution Board. Additional or complementary guidance would be appreciated considering the expectations, the dimensions including the necessary steps and initiatives needed to ensure resolvability e.g. operational continuity. In addition, some of the resolvability dimensions seem to overlap with the conditions included in the Multiple Points of Entry (MPE) action plan and the resolvability progress report provided to the IRT.

 

Summary of positions on the dimensions:

  • Proportionality: in our opinion, the SRB's expectations for banks follow a maximum approach of the best practices that banks are expected to put into place to demonstrate their resolvability and preparation for crisis management. We believe that a cost/benefit assessment has to be made in advance requiring banks to comply with each expectation.
  • Recovery planning: the communication plan included in the recovery plan shall also be in line with the resolution planning and take into account the relevant stakeholders.
  • Governance: ESBG believes that the definition used in the Governance dimension has to be clarified since there is some kind of confusion among the different levels of management (e.g. management body, senior management, board of directors, supervisory board...). In our opinion the concept of senior management is flexible enough and is applicable to one-tier and two- tier systems. Therefore, for these institutions, the expectations on governance should be applied at the level of senior management instead of the board of directors.
  • Loss absorption and recapitalisation capacity: an area which deserves closer consideration is the external execution including the communication with external stakeholders. For example, information for an external counterparty could be collected directly via the Central Securities Depository (CSDs) or the custodians
  • Liquidity: as specified in the “expectations for banks" document, we believe that the following objectives are unnecessary regarding liquidity and should be removed:
    • Estimate the liquidity and funding needs for the implementation of the resolution strategy (inappropriate)
    • Measure and report the liquidity situation in resolution (appropriate)
    • Identify and mobilize collateral that can be used to obtain funding during and after resolution (inappropriate)
  • Operational continuity and access to FMI:
    • We see difficulties in mapping critical and essential services to critical functions given that, usually, critical and essential services are related to various critical functions at once
    • Regarding the definition of critical, essential and other relevant services for resolution, we would welcome a more detailed definition and concrete examples on how to identify/define these services.
    • We would also suggest to amend the text to include any assets that qualify as liquid assets under Delegated Regulation 2015/61 or are considered eligible for standard monetary operations by any central bank domiciled in the EAA, because this will enrich the universe of liquid assets that institutions can pledge, without compromising on the liquidity characteristics of those assets.
  • Information systems and data requirements:
    • We consider that the expectations regarding to the management information system and valuation capabilities are too ambitious. Obtaining the information required in a very short period will be a burden of works for banks since significant system developments should be carried out.
    • Resolution relevant reporting (e.g. LDR, ALR) are not proper tools for ad-hoc valuation or bail-in. It must be noted however, that the relevant data points (partially in consultation) have to be proportionate and useful
    • Regular testing and data provision of data relevant for valuation should be disregarded as ad-hoc valuation should not happen frequently in business as usual and a regular reporting causes slowdown of business processes and operation.
  • Separability and restructuring: if bail-in is the preferred resolution tool without any variant strategy, banks should not be requested to prepare for “asset separation" or separability of critical functions and core business lines. Furthermore, the concept of core business lines is treated different among countries and banks. We would need more clarity on the definition of a core business line, on business reorganization plans and the difference between the tools “sale of business", “asset separation and separability".




Proportionality; Regulation; Single resolution mechanism