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Re Resolution planning: Legal framework and pr prac actic ical al expe perie ienc nce Ewa Klima Ewa Dep eputy Gen ener eral Counsel el Single e Res esolution Board l Malta, June 9, 2017 TABLE OF CONTENTS 1. SRBs mission


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Re Resolution planning: Legal framework and pr prac actic ical al expe perie ienc nce

Ewa Ewa Klima

Dep eputy Gen ener eral Counsel el Single e Res esolution Board

Malta, June 9, 2017

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TABLE OF CONTENTS

  • 1. SRB’s mission & tasks
  • 2. Resolution planning
  • 3. Credibility & feasibility of insolvency

proceedings

  • 4. Identification of preferred resolution

strategy

  • 5. Determination of MREL
  • 6. Impediments to resolvability
  • 7. Adoption of the resolution plan
  • 8. Practical experience and challenges

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Member States in the Eurozone Member States not in the Eurozone

SR SRB’S S MISSI SSION & TASK SKS

  • The SRB together with the National Resolution

Authorities (NRAs) forms the Single Resolution Mechanism.

  • The SRB is directly responsible for:
  • Significant banks
  • Cross-border banking groups
  • SRB’s main tasks:
  • Resolution planning
  • Resolution action
  • Single Resolution Fund (SRF)

The mission of the SRB is to ensure an orderly resolution of failing banks with minimum impact on the real economy and the public finances of the participating Member States of the Banking Union.

ES PT FR UK IE BG RO HU EL IT DE BE NL LU PL CS SK AT LT LV EE FI SE DK

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If If neg egativ ive, identification

  • f re

resolution st strategy

RE RESOLUTI TION PLAN ANNING

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Assessment of fe feasibility & cr credibility y of normal inso nsolvenc ncy proceedings Assessment of fe feasibility & cr credibility y of the preferred re resolution st strategy De Determination

  • n
  • f
  • f MREL

Id Iden entific ificatio ion

  • f
  • f

imp imped edimen iments to to resolvability Ad Addressing g imp imped edimen iments to to re resolvability RESOLUTION PLANNING

Resolution plans are to be dr drafted d and and upda updated d at at le leas ast annually annually

RESOLUTION PLANNING IS AN IT ITER ERATIV IVE E PR PROC OCESS

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CR CREDIBI BILI LITY & FEASIBI BILI LITY OF INS NSOLVENCY NCY PR PROCE CEEDING NGS

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1. Insolvency proceedings are credible when there is no material adverse impact on:

ü financial market functioning and market confidence;

üfinancial market infrastructures; üother financial institutions; üthe real economy and in particular the availability of critical financial services.

2. Insolvency proceedings are feasible when the entity:

ühas systems that are able to provide the information required by the deposit guarantee scheme, in inclu ludin ing on cover ered ed dep eposit it ba balanc nces; üis capable of supporting the deposit guarantee scheme’s operations, by by disti tingu guishing g betw tween co covered and non-co covered balances of deposits acco counts.

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ID IDENTIF IFIC ICATIO ION O OF P PREFERRED R RESOLUTIO ION S STRATEGY

Different to tools can be used to sa safeguard public public in interests, including the continuity of the bank’s critical functions and financial stability, at minimal costs to taxpayers.

RE RESOLUTION AP APPROACH Si Singl gle po point of entry ap approac ach The application of resolution powers by a single resolution authority at the level of a single parent company or of a single institution subject to consolidated supervision Mu Multi tiple po point of entry ap approac ach The application of resolution powers by two or more resolution authorities to regional sub-groups

  • r entities of a bank

FS FSB Guidance on developing ef effective resolution strat ategies

RESOLUTION TOOLS SALE OF BUSINESS BRIDGE BANK TOOL ASSET SEPARATION TOOL BAIL-IN

Part or all of the shares or

  • ther instruments of
  • wnership or assets, right and

liabilities can be sold to a private purchaser Assets, rights and liabilities can be transferred to an asset management vehicle, totally

  • r partially publicly owned, if

liquidation of the assets could cause market disruption. Part or all of the shares or

  • ther instruments of
  • wnership or assets, right and

liabilities can be transferred to a temporary entity. Liabilities can be written down and converted, placing the burden on shareholders and creditors of the bank rather than on the public.

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DE DETERMINA NATION N OF F MREL

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Ø In order to ensure the effectiveness of the bail-in tool, entities should at all times meet a Mi Mini nimum um Requi equirem remen ent for r own n funds unds and and Eligi gibl ble e Liabi abilities es, expressed as a percentage

  • f the total liabilities and own funds.

Ø MREL should not exceed the amount sufficient to ensure that losses are absorbed and the capital requirements of the relevant entities restored to enable them to continue being authorised and to operate with sufficient market confidence.

The MREL determination is done on a case by case basis according to certain criteria:

  • size, business model, funding model &

risk profile

  • extent of possible DGS contribution;
  • possible significant adverse

consequences for the financial system in case of failure of the entity

Eligible liabilities are included when:

  • issued and fully paid up
  • not owed to/secured to/guaranteed by

the entity itself

  • their purchase not funded directly or

indirectly by the entity itself

  • maturity is of ≥ 1 year
  • not arising from a derivative
  • not arising from covered or preferred

deposits

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IM IMPEDIM IMENTS T TO R RESOLVABIL ILIT ITY

  • Identification of impediments to

resolvability:

  • structure and operations; financial

resources; information; cross-border issues; legal issues.

  • Measures to address impediments to

resolvability include, inter alia, to require:

  • the revision of any intragroup financing

agreements or drawing up of SLAs;

  • the divestment of specific assets;
  • the limitation/termination of specific

activities;

  • changes to legal or operational

structures of the entity;

  • the issuance of eligible liabilities or

taking any other steps to meet the MREL requirements.

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Procedure:

1. Identification of substantive impediments, after consulting the supervisor 2. Preparation of report addressed to the bank, in cooperation with the supervisor 3. Proposal of possible measures by the bank within four months 4. Assessment of the effectiveness of the proposed measures by the SRB, after consulting the supervisor 5. If negative assessment, requiring the bank to take specified measures

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AD ADOPTI TION OF F TH THE RE RESOLUTI TION PLAN AN (I (INV NVOLVING NG RESOLUTION N COLLEGE)

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PR PRACTICA CAL L EXPE PERIENCE CE AND CH CHALLE LLENGES

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1. Information exchange and data quality

  • Banks
  • Supervisory authorities and other relevant EU and national authorities

2. Cooperation and institutional arrangements

  • At the level of EU institutions
  • Within the Banking Union
  • Wider EU
  • Third countries

3. Novelty and uncertainty

  • Precedent and new legal environment
  • Expertise
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TH THAN ANK YOU

ca camille.de-re rede@srb.europa.eu For more information, please contact: