NEWS Release - EBA sees good range of options in recovery plans but areas for improvement still remain
With the implementation of the Bank Recovery and Resolution Directive (BRRD) in January 2015, recovery planning has become a key aspect of European banking groups’ planning and risk management and is now embedded in the standard cycle of supervisory activities.
As part of its ongoing efforts to provide supervisors and banks with valuable support in effectively taking forward recovery planning activities, the EBA has conducted a fourth thematic comparative analysis. This follows the peer-group exercise on core business lines and critical functions (published in March 2015), the comparative report on the approach taken for scenario testing in recovery plans (published in December 2015) and the comparative report on governance arrangements and indicators (published in July 2016). This time, the focus of the comparative analysis is recovery options, which are crucial for assessing the actual capacity of institutions to regain viability following a period of severe financial distress.
In line with Article 18(1)(b) of Commission Delegated Regulation (EU) 1075/2016, a recovery plan is complete if it contains a sufficient number of plausible and viable recovery options which make it reasonably likely that the institution or group would be able to counter different scenarios of financial distress quickly and effectively. Therefore, the institution should provide a thorough assessment of the potential success of the implementation of a given option, as well as quantitative and qualitative estimates of its impact. This should help in reaching a comprehensive assessment of the plausibility of the option, that is, it should help in understanding whether such a measure would actually be available in times of severe financial distress and if it is reasonably likely that it could be implemented to an extent that sufficiently achieved its objectives without any significant adverse effect on the financial system.
In general, all the recovery plans in the sample provided a good overview of recovery options and – with respect to plans that had been submitted in the past, prior to the entry into force of the BRRD – clear improvements could be seen across the board with regard to analysis of financial impact, possible interaction with the scenarios and assessment of credibility. Nevertheless, several areas where some challenges remain were identified.
The linking of recovery options to governance and scenarios is particularly important. The former helps in understanding whether an option is feasible in terms of actual implementation and possible obstacles, while the latter relates to the need to test the actual effectiveness of the selected measures against situations of severe financial distress. In this regard, the analysis revealed that roughly half of the recovery plans provided details on governance, decision making and implementation for each specific option. However, there were a number of plans where these features were not specified and recovery options relied on only general governance procedures, so that the actual feasibility of each option was not clear. Similarly, while the majority of recovery plans specified the suitability of different recovery options under the stress scenarios (mostly in qualitative terms), many plans were lacking a detailed assessment that would enable an analysis of the feasibility of the options under each scenario.
page source http://www.eba.europa.eu/documents/
