To prevent future failing banks having negative impact on the financial system and the wider economy, the Single Resolution Board (SRB) and the local National Resolution Authorities (NRAs) were set up. One of the key tasks of the SRB and the local NRAs (in the Czech Republic the Czech National Bank) is to draft resolution plans for the banks, with significant cooperation with the institutions themselves.
This entails the following planning steps (before resolution):
Identify and address any impediments to its resolvability
Setting minimum requirement for eligible liabilities (MREL)
Prepare for their possible resolution
… and the following execution steps (during and after the resolution):
Coordinate the involvement of the relevant Supervisory and Resolution Authorities
Depending on the resolution strategy for each bank, the institutions have to frame their own response in the form of resolution planning to satisfy the Resolution Authorities in their increasing expectations (Czech version). Banks are also required to follow several European Banking Authority (EBA) Guidelines and Regulatory Technical Standards, and are required to provide evidence of its preparedness for a potential resolution in the following seven dimensions:
Governance
… robust processes for:
Loss absorption and recapitalisation capacity
… sufficient loss absorption and recapitalisation capacity to absorb losses in resolution:
Liquidity and funding in resolution
… processes and capabilities - during and after resolution - to:
Operational continuity in resolution and access to financial market infrastructure
… adequate operational arrangements to ensure the continuity of services necessary for:
Information systems and data requirements
… adequate Management Information Systems to:
Separability and restructuring
… structure that supports the implementation of the resolution strategy:
Communication
… the ability to ensure timely, robust and consistent communication:
Since the process of a failing institution can be very quick and surprising, on top of integrating the resolution planning process into the above impacted areas, several concrete playbooks / handbooks are required from the institutions:
Governance setup
A detailed mapping of responsibilities of critical people within the institution with a clearly defined role during resolution.
Bail-in Playbook
Description of detailed processes for a timely and effective support for the NRA in write-down and/or conversion (WDC) of capital instruments and other bail-inable liabilities.
Sale-of-business Playbook or an Asset Separation Playbook
Description of a process in which the failing institution would be sold to a different bank in whole or in part (alternatively sold to a Bridge institution with the intention of eventual sale to a new owner).
Liquidity Plan and tools for a liquidity crisis
Estimation of liquidity needs in resolution for the implementation of the approved resolution strategy.
Business Continuity Plans
Amended to take into account the requirements for operational continuity and access to FMIs in resolution.
Valuation Handbook
Together with an effective Management Information System able to quickly hand-over to the NRA the required information.
Crisis Communication Plan / Playbook
Outlining the key stakeholders, communication channels and communication responsibilities during the crisis.
We can help from small support in individual resolvability dimensions to comprehensive resolution planning support covering all the phases from gap analysis to final regulatory submission.
We support institutions in their understanding, management and deliveries towards their preparedness for resolution. We cover all aspects of the Resolution Planning process:
By helping the banks in their resolution planning, a collection of improvement opportunities and recommendations are formulated towards reaching regulatory compliance and leading market practice. The initiative delivers targeted projects designed to implement the recommendations. It usually maps the existing state of the institution’s resolution planning agenda, identifies gaps vis-à-vis the regulatory expectations, and proposes remediation steps.
Financial Services Risk and Regulatory, PwC Czech Republic
Tel: +420 705 892 802
