Consultation on draft RTS specifying the range of scenarios to be used in recovery plans

The European Banking Authority (EBA) launches today two consultations on Draft Regulatory Technical Standard (RTS) related to the assessment process of recovery plans by competent supervisors (I) and to the range of scenarios to be used in those plans (II). The consultations run until 20 August 2013.

RTS on the assessment of recovery plans

These draft RTS outline the matters that competent supervisors must assess when reviewing individual and group recovery plans developed by financial institutions. The main objective is to ensure a common approach across the EU regarding the assessment of recovery plans and so to facilitate joint assessments of group recovery plans by different supervisory authorities. 

The RTS provide the general criteria which national authorities should follow when assessing both individual and group recovery plans. Those criteria are based on three key features: completeness, quality and overall credibility.

RTS specifying the range of scenarios to be used in recovery plans

These draft RTS intend to specify the range of scenarios to be designed by financial institutions when testing their recovery plans. Given that the design of the appropriate scenarios depends on the specificities of each institution (activity, size, interconnectedness, business and funding model, etc.), the RTS attribute to institutions the responsibility of selecting relevant scenarios and to national supervisors the task of assessing the adequacy of the chosen scenarios.

However, the RTS provides a number of relevant events which need to be considered by banks when designing the most appropriate scenarios. Moreover, the RTS also require at least three scenarios to be used: one covering a system-wide event, one covering an idiosyncratic event and one covering a combination of both types of events.

Next steps

The proposed consultation papers are based on the draft Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD) as proposed by the European Commission on 6 June 2012. As the text is still being discussed by the EU legislators (European Parliament and Council), the draft RTS might be amended after the consultation to take into account inter alia possible changes in the final RRD.

The EBA will submit the final draft RTS on recovery plans to the European Commission within 12 months from the date of entry into force of the RRD.

Consultation process

Comments on these consultations can be sent to the EBA by e-mail.

For the consultation on the draft RTS on the assessment of recovery plans: send your comments to EBA-CP-2013-8@eba.europa.eu by 20 August 2013, indicating the reference EBA/CP/2013/08.

For the consultation on the draft RTS specifying the range of scenarios to be used in recovery plans: send your comments to EBA-CP-2013-9@eba.europa.eu by 20 August 2013, indicating the reference EBA/CP/2013/09.

All contributions received will be published unless you request otherwise.

A public hearing covering both consultations will take place at the EBA premises on 19th July 2013 from 9:30 to 12:30. To register for the public hearing, click here

Notes

1. The European Commission presented on 6 June 2012 a proposal for a Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the so-called Recovery and Resolution Directive - RRD). The objective of the Directive is to ensure that in the future authorities will have the means to intervene decisively both before problems occur and early on in the process if they do (prevention and early intervention powers). Furthermore, if the financial situation of a bank deteriorates beyond repair, the proposal ensures that a bank's critical functions can be rescued while the costs of restructuring and resolving failing banks fall upon the bank's owners and creditors and not on taxpayers (resolution powers).

2. On 11 March, the European Banking Authority (EBA) launched a consultation on Draft Regulatory Technical Standard (RTS) on the content of recovery plans.