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Resolution - Pressures build on European banks

Resolution

Resolution

As the Resolution agenda evolves from the design and implementation phase into business as usual, the Bank of England (BoE) and the Single Resolution Board (SRB) are increasing their focus on the credibility and implementability of resolution plans of banks under their remit. As a result, requirements for what significant institutions need to put in place ahead of resolution, including holdings of loss absorbing capacity, liquidity, valuation preparedness, financial contracts and relationships with financial market infrastructure are being ratcheted up.

This new paper from KPMG’s EMA FS Risk & Regulatory Insight Centre and the KPMG’s ECB Office looks at eight areas, identified by the FSB, BoE and SRB, where systemically important banks need to take actions to improve their resolvability.

The SRB is directly responsible for Ireland’s significant institutions (SIs) and cross border groups and the Central Bank of Ireland (CBI) collaborates closely with the SRB on any resolution topics for these credit institutions. The CBI, as the national resolution authority (NRA), is also tasked to define and apply the resolution agenda locally for less significant institutions (LSIs), certain investment firms and credit unions. With the publication in April of the CBI Approach to Resolution for Banks and Investment Firms (First Edition), LSIs in Ireland have now been provided with a definitive explanation of the required approach and expectations in this regard. 

The CBI’s approach naturally follows the European Union’s legal framework under the Bank Recovery and Resolution Regulation & Directive and therefore aligns requirements, where proportionally relevant, between Irish SIs and LSIs. Therefore, both SI’s and LSI’s will need to consider how their operating structures will facilitate recovery and resolution, how to navigate regulatory requirements and what to focus on to meet these challenges.  In particular all firms should ensure:

  • the various strands of their recovery and resolution planning work are fully joined-up;
  • they have identified and are tackling potential impediments to resolvability;
  • they have implemented commercially viable solutions that meet the needs of customers, investors and regulators.

KPMG Ireland can help institutions address these challenges; acting as strategic advisor on the recovery and resolution journey by bringing together the various elements of planning and assessment: operational continuity, funding, loss absorbing capacity, valuation, governance and communications.