Recovery Planning at State Street Bank GmbH As of December 31, 2014 - - PowerPoint PPT Presentation

Recovery Planning at State Street Bank GmbH

As of December 31, 2014

2 * The relevant KWG were replaced by the SAG (German Recovery and Resolution Planning Act), which came into force on January 1, 2015.

Regulator Aims to Minimize Risks for Clients and Taxpayers

The presentation is focusing on Recovery Planning in regards to the requirements SSB GmbH has to fulfil within Germany Regulatory Regulatory Regulatory Regulatory Aims Aims Aims Aims

Legal Implementation Germany KWG* (German Banking Act) and MaSan (Minimum Requirements for the Design of Recovery Plans) binding for State Street Bank GmbH as of December 31, 2014 Europe Bank Recovery and Resolution Directive (effective since January 1, 2015) in conjunction with the respective EBA Standards

• Risk minimization for clients and taxpayers (esp. through

involvement / participation of the banks’ creditors)

• Implementation of coherent recovery standards within Germany

as well as the European Union

• Significant strengthening of the authorities
• Avoidance of a bankruptcy of a bank due to an early initiation of

recovery measures

• Supply of instruments for the recovery of banks in order to avoid

knock-on effects on other institutions or the financial system in general

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Strategic Business & Scenario Analysis as the Basis for Increased Viability of Banks

• Recovery Planning is based upon the following principles

– Identification of key commercial as well as critical activities that will need to be preserved in the event that an institution is under financial distress – Institution must develop appropriate governance and measurement criteria to identify financial distress and to determine when necessary actions need to be taken – Recovery activities should have both a meaningful impact and should be achievable within a reasonable period – Scenarios should consider both idiosyncratic and systemic stress conditions – Scenarios should cover two time horizons: short-term (sudden occurrence) and long-term (gradual occurrence exceeding 6 months) – The planned actions should result in the restoration of the institution’s capital and liquidity position to appropriate regulatory levels

Recovery Plans must be kept confidential must be kept confidential must be kept confidential must be kept confidential and may only be disclosed to third parties that are involved in the development and implementation of the Recovery Plan (§ 47i para. 4 KWG or § 21 SAG)

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Recovery Planning for Preparation Purposes

SSB GmbH has developed a Recovery Plan in order to protect the viability of the institution

Business Monitoring Business Monitoring Business Monitoring Business Monitoring Being Prepared Being Prepared Being Prepared Being Prepared Recovery Zone Recovery Zone Recovery Zone Recovery Zone Institution Institution Institution Institution Authority Authority Authority Authority

• Based on internal early

warning indicators (more restrictive than official restrictions) a threshold violation would lead to undertaking counteractions Recovery Planning

• Preparation / update of a

Recovery Plan on a stand- alone level Resolution Planning

• Provide information for the

creation of the Resolution Plan on request of the resolution authority

• Decision which potential

Recovery Option/s will be chosen

• Provide information to the

competent authority about the situation and selected Recovery Option/s

• No responsibilities
• No responsibilities

Recovery Planning

• Assessment of the

institution‘s Recovery Plan (competent authority) Resolution Planning

• Development of a

institution specific Resolution Plan (resolution authority)

• No responsibilities

Resolution Zone Resolution Zone Resolution Zone Resolution Zone

• Potential options:

− Sell or transfer assets into a special interim / bridge institution − Extraction of assets − Usage of “Bail-In“ instruments

(Current) Normal Zone (Current) Normal Zone (Current) Normal Zone (Current) Normal Zone Business Recovery Business Recovery Business Recovery Business Recovery Authority Coordination Authority Coordination Authority Coordination Authority Coordination Responsibility Responsibility Responsibility Responsibility

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SSB GmbH Ownership

SSB GmbH is a wholly owned indirect subsidiary of State Street Bank and Trust Company (“SSBT”), which is a wholly owned subsidiary of State Street Corporation (“SSC”). SSC and all of its subsidiaries are collectively referred to as State Street. SSC is a publicly listed (NYSE: STT) bank holding company and a financial holding company headquartered in Boston, United States of America. SSC is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System in the United States SSBT is the principal banking subsidiary of SSC and is a direct wholly-owned subsidiary of

• SSC. SSBT’s primary federal banking regulator is the Board of Governors of the Federal

Reserve System in the United States. In addition, SSBT is subject to the supervision and regulation of the Massachusetts Division of Banks and the Federal Deposit Insurance Corporation State Street has been identified as systemically important by the Financial Stability Board and the Basel Committee on Banking Supervision

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State Street Bank GmbH State Street Eligible Capital Total 1,309M EUR 14,711M EUR Tier 1 Capital 1,245M EUR 12,984M EUR Total Capital Ratio 26.4% 19.8% Tier 1 Capital Ratio 25.2% 17.4%

The State Street Group is Characterized by its Strong Financial Situation

Comparison of Major Capital Figures as of December 31, 2014

Potential differences of the underlying calculation methods between divergent jurisdictions may affect the presented capital figures

State Street is characterized by a strong capital basis. State Street is characterized by a strong capital basis. State Street is characterized by a strong capital basis. State Street is characterized by a strong capital basis.

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Part 4 Part 4 Part 4 Part 4

Executive summary Executive summary Executive summary Executive summary of

• f
• f
• f the Recovery Plan

the Recovery Plan the Recovery Plan the Recovery Plan the Recovery the Recovery the Recovery the Recovery Plan Plan Plan Plan

Part 1 Part 1 Part 1 Part 1

Strategic Strategic Strategic Strategic Analysis Analysis Analysis Analysis

• Description of the credit institution including legal and organizational structure, key figures, business

activities, interconnectedness

• Identification of business activities that are key commercial activity and/or critical activity:

Key Commercial Activity: Identification of services that have a significant impact on the net assets, financial position and profit situation focus on SSB GmbH / internal impact. Critical Activity: Identification of services where in case of an inability of SSB GmbH to provide these a considerable impact on the financial market infrastructure is expected focus on financial markets / external impact.

Part 2 Part 2 Part 2 Part 2

Implementation Implementation Implementation Implementation of identified additional Recovery Options

• f identified additional Recovery Options
• f identified additional Recovery Options
• f identified additional Recovery Options

Identification of additional recovery measures and detailed steps to implement such.

Recovery Recovery Recovery Recovery Options & Stress Testing Options & Stress Testing Options & Stress Testing Options & Stress Testing

For detailed information regarding the requirements, please refer to next slide

Part 3 Part 3 Part 3 Part 3

State Street Bank GmbH‘s Recovery Plan Structure (1/2)

State Street Bank State Street Bank State Street Bank State Street Bank GmbH Recovery GmbH Recovery GmbH Recovery GmbH Recovery Plan Plan Plan Plan

in accordance with KWG and MaSan

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• General Recovery Options: State Street Bank GmbH has to describe the potential toolbox of all

appropriate measures

• Stress testing: at least 6 scenarios to be defined & analyzed by State Street Bank GmbH
• State Street Bank GmbH analyzes more than the minimum required scenarios
• Special focus on the impact in order to ensure that they are affected to the least possible extent
• Definition of Recovery Indicators and escalation process
• Recovery Options per stress scenario: Analysis regarding feasibility and prospects of success
• Internal and external communication: Including communication strategy in case of stress
• Information management: Analysis and description of the information availability in case of stress (information will be

provided to the regulator)

State Street Bank GmbH‘s Recovery Plan Structure (2/2)

Required scenario focus Systemic Stress (e.g. a macro economic Systemic Stress (e.g. a macro economic Systemic Stress (e.g. a macro economic Systemic Stress (e.g. a macro economic crisis) crisis) crisis) crisis) Idiosyncratic Stress Idiosyncratic Stress Idiosyncratic Stress Idiosyncratic Stress Combination of Systemic and Idiosyncratic Combination of Systemic and Idiosyncratic Combination of Systemic and Idiosyncratic Combination of Systemic and Idiosyncratic Stress Stress Stress Stress Regarded time horizon Sudden occurrence Gradual occurrence x x x x x x x x x x x x x x x x x x x x x x x x

State Street Bank State Street Bank State Street Bank State Street Bank GmbH Recovery GmbH Recovery GmbH Recovery GmbH Recovery Plan Plan Plan Plan

in accordance with KWG and MaSan

Part 3 Part 3 Part 3 Part 3 – – – – Recovery Recovery Recovery Recovery Options & Stress Testing Options & Stress Testing Options & Stress Testing Options & Stress Testing

SSB GmbH has overcome the global Financial Crisis as well as the European Sovereign Debt Crisis in good shape. This is because SSB GmbH is (inter alia) a well-managed institution that is also characterized by a sound business model and a high degree of capitalization. SSB GmbH performs scenario-based risk management already for many years in order to be prepared for unexpected situations. Hence, in view of SSB GmbH the authority‘s requirement to create and hand in Recovery Plans is considered to be positive. This is because an external assessment as well as the discussion with the regulatory authority potentially enables SSB GmbH to implement further improvements and hence to be better prepared for the future. SSB GmbH complies with all recovery planning-related regulatory requirements. As indicated before, State Street is a global systemically important financial institution, and SSB GmbH is one of its larger and more significant subsidiaries and hence designated as a Material Entity for purposes of State Street Corporation’s Recovery and Resolution Planning

• requirements. Consequently SSB GmbH has to develop a Recovery Plan under German law.

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Summary