Single Resolution Board Publishes Framework for Valuation

The EU Single Resolution Board has published a Framework for Valuation, setting out the principles upon which valuations for resolutions for Eurozone banks under the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation should be based. BRRD and the SRMR require resolution authorities to ensure a fair, prudent and realistic valuation of a relevant institution’s assets and liabilities is conducted by an independent valuer prior to resolution or write-down. The Framework is intended to provide an indication of best practices for independent valuers and the general public, but should not be taken to limit the independence of valuers when performing a valuation in a specific case.

There are three valuation stages identified in the Framework:
 

1. Valuation 1: occurs prior to resolution and informs the determination of whether resolution or capital conversion conditions have been met;
2. Valuation 2: occurs prior to resolution and informs the choice of resolution action to be adopted and the implementation of resolution tools; and
3. Valuation 3: occurs after resolution and informs the determination of whether a normal insolvency procedure would have resulted in a better outcome for shareholders or creditors (which in turn establishes whether the “no creditor worse off” principle applies to the resolution in question).

The Framework sets out the SRB’s expectations for Valuations 2 and 3, providing an overview of the different valuation methodologies available to valuers, potential adaptations to be made to valuations for particular resolution tools, considerations to be taken into account when conducting a provisional (as opposed to a definitive) valuation, and methodological considerations for conducting a counterfactual valuation (for the purposes of Valuation 3). The SRB has also published a series of Q&As on its Framework for Valuation.

View the SRB's Framework for Valuation.

View the SRB's Q&As on its Framework for Valuation.

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