European Banking Authority Assesses Governance and Indicators in EU Recovery Plans

The European Banking Authority published a comparative report on recovery plan governance and indicators. Banks and certain large investment firms are required by the Bank Recovery and Resolution Directive to prepare recovery plans and to submit them to their national regulator. The national regulator must assess the credibility of the recovery plans. The BRRD requires firms to include appropriate conditions and procedures for the timely implementation of any recovery actions and a framework of indicators that identify the points at which certain recovery actions may be taken. The EBA compared the recovery plans of 26 European cross-border banking groups with parent firms located across 12 EU countries. The aim of the analysis is to assess how firms are implementing the requirements of the BRRD as well as draft technical standards on the content of recovery plans and EBA Guidelines on recovery indicators and to consider the credibility and effectiveness of governance arrangements across the sample banks. The EBA hopes that the analysis will assist regulators in their assessments of recovery plans, in particular, in identifying crucial elements to be considered by institutions when designing credible governance arrangements and effective indicator frameworks. 

The EBA concludes that most firms have understood the importance of developing sound governance arrangements and also that indicators are key to promote the timely activation of a recovery plan. However, the EBA considers that improvements are possible. For governance arrangements, local management should be involved in developing and updating the group plan.  Also, most plans need more detail on the steps taken to ensure coordination of actions at the group and local level. Further alignment is also needed of the procedures for escalation at local and group level. For indicators, the EBA considers that the scope of indicators used should be broader (most firms only use capital and liquidity) to include asset quality, profitability, market-based indicators and macroeconomic indicators. Capital and liquidity indicators are often set at levels that are too low, which hinders timely activation of the relevant escalation procedures and recovery options. Finally, most plans do not include enough detail for indicators at the level of individual subsidiaries.

View the report.