The European Banking Authority (EBA) published today its final Guidelines on the circumstances under which an institution shall be considered as ‘failing or likely to fail' (triggers for resolution). These Guidelines aim at promoting convergence of EU supervisory and resolution practices in relation to how resolution should be triggered.
Determining whether an institution is failing or likely to fail is the necessary element to start any resolution process as it represents one of the three cumulative conditions for triggering resolution. This assessment is carried out by the supervisors, but Member States may additionally grant this power to resolution authorities.
Despite the fact that supervisors and resolution authorities would follow different procedures when determining whether an institution is failing or likely to fail, their decisions should be based on the same criteria and objective elements. This underlying principle is reflected in the final Guidelines, which lists under one single section all objective elements for determining whether an institution is failing or likely to fail These elements are applicable to both supervisors and resolution authorities. In addition, the Guidelines specify different sets of procedural rules addressed to each of these authorities, and establish the link between the supervisory review and evaluation process (SREP) and failing or likely to fail determination made by the supervisors.
With the aim of enhancing the coordination of supervisory and resolution practices, these Guidelines also provide additional guidance on the consultation and exchange of information between these authorities when deciding if an institution is failing or likely to fail.
Legal basis and background
These Guidelines have been developed according to Article 32(6) of the Bank Recovery and Resolution Directive (BRRD), which mandates the EBA to specify the circumstances under which an institution shall be considered as failing or likely to fail.
These Guidelines complement the EBA Guidelines on early intervention triggers and the Guidelines for common procedures and methodologies for the SREP. The three Guidelines together provide a sound set of guidance for supervisory practice in the EU banking sectors and link on-going supervision, early intervention and resolution.
These Guidelines, which are addressed to supervisors and resolution authorities, will apply from 1 January 2016. Following the publication of the English version, the EBA will make available, in due course, the translations of these Guidelines in all EU languages. Within two months from the publication of the translated Guidelines, supervisors and resolution authorities shall confirm to the EBA their compliance status, which will be disclosed on the EBA website.