EBA欧洲银行-EBA-BS-2016-Comparative-report-on-RP-governance-and-indicators_July-2016_34页_690kb

EBA Recovery Planning Comparative Report Summary

Core Content

This report, published by the European Banking Authority (EBA) on 05 July 2016, is a comparative analysis of governance arrangements and recovery indicators across 26 European cross-border banking groups. It follows previous reports on core business lines and scenario testing, and aims to understand how institutions approach the requirements set by the Bank Recovery and Resolution Directive (BRRD) and the EBA Guidelines on recovery indicators.

The EBA's analysis is based on recovery plans submitted during 2015, and it acknowledges that some plans were developed before the BRRD was fully implemented in their respective countries. Despite this, a draft common approach was already in place due to the early publication of the BRRD and EBA technical standards.

Main Viewpoints

Governance Arrangements

1. Recovery Plan Development

   • Most recovery plans included a detailed description of the development process and the roles of individuals or corporate bodies.
   • A minority of plans lacked clarity in defining these roles or processes.
   • The majority of institutions involved various specialists at the group level in the development of the recovery plan.
   • Only about one-third of the plans mentioned the involvement of subsidiary management, often without sufficient detail.

2. Approval Process

   • The recovery plan was typically approved by the Board of Directors of the parent entity.
   • Half of the recovery plans were reviewed by an internal audit function, and one required endorsement by the Audit Committee.
   • A small fraction involved external auditors, with limited scope for their involvement.

3. Involvement of Local Management

   • 38% of recovery plans explicitly mentioned the involvement of local management in preparing and updating the plan.
   • However, most did not provide necessary details on this cooperation.
   • Only two recovery plans required local Boards of Directors to approve sections related to local entities.

Escalation Process

• Most banks integrated recovery plans into their existing governance arrangements.
• Some plans lacked clarity in defining escalation procedures and the role of indicators at different stages of financial deterioration.
• The BRRD requires that competent authorities be notified after the escalation process is triggered by the breach of recovery indicators, not merely when recovery measures are applied.

Recovery Indicators

• The report highlights the importance of having a broad set of indicators to monitor potential signs of distress.
• Many institutions focused on capital and liquidity indicators, while other categories such as asset quality, profitability, market-based indicators, and macroeconomic indicators were often considered only as early warning signals (EWS) or omitted entirely.
• Calibration of recovery indicators, especially in relation to capital ratios and regulatory requirements, was identified as a challenge.
• The traffic light approach was used by some institutions to signal different levels of financial distress.

Key Information

Structure of Recovery Plans

• The BRRD and draft RTS on recovery plan content do not impose detailed structural requirements, but suggest grouping information under five headings: summary, governance, strategic analysis, communication plan, and preparatory measures.
• The structure of the recovery plan and the level of detail for individual entities significantly influence the plan's ability to meet the BRRD requirements.

Challenges Identified

• Limited involvement of local management in the development and updating of group recovery plans.
• Insufficient detail on the interaction between escalation and monitoring procedures at the group and local levels.
• Inadequate coverage of material legal entities, with many plans focusing on the parent perspective.
• Limited use of indicators at the local level, which may hinder the effectiveness of the group recovery plan.

Best Practices

• Some banks conducted Dry Run/simulation exercises to test their recovery plans and improve governance arrangements.
• These exercises were performed annually or every two years and helped identify areas for improvement, particularly in escalation processes.

Conclusion

The report concludes that while there are clear improvements in governance arrangements and recovery indicators, several areas require further attention. Specifically, more detailed involvement of local management, better integration of local indicators, and clearer escalation procedures are needed to enhance the credibility and effectiveness of recovery plans. A well-structured and calibrated indicator framework is essential for identifying when an institution transitions from going concern to gone concern, supporting both supervisors and resolution authorities in their roles.