Response to consultation on draft guidelines on recovery plans indicators
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As stated above, we do not agree that macroeconomic indicators should be used and do not see the need for an overly prescriptive list of indicators. These should be determined by a firm and its resolution authority. We would also expect the minimum list to be restricted to capital and liquidity indicators, as stated above. Nevertheless, authorities should have the flexibility to use indicators similar management indicators that are monitored regularly by the entity which can be more valuable for decision-making if a recovery option has to be implemented.
In relation to the minimum and the additional list of recovery plan indicators, we consider that the minimum list is sufficiently extensive. Therefore, some of the additional indicators may be considered unnecessary for banks that do not have certain types of business or exposures. Some indicators are either highly correlated or somewhat repetitive. Some of the indicators listed in Section C of Annex I should be included in Annex II as illustrative examples of indicators that could be applied, rather than in the minimum list of categories of indicators.
As we have noted in our answer to Question 2, while we agree with Section A and B as minimum recovery indicators, and we generally support banks using the categories of recovery indicators defined in Section C, the specific underlying indicators should either all be rebuttable or part of the illustrative list. This is because they may overlap with existing management indicators which may be better suited, or they may not be appropriate to all banks, or they are better as “early warning” indicators.
The EBF as stated above is of the opinion that indicators should be institution specific. However, greater clarity around whether indicators should be monitored / reported on a Group or legal entity basis should be given.
Furthermore, we note that the deviation from budget is difficult to calibrate and not necessarily an indicator of stress. Therefore we propose to exclude this indicator.
Similarly we do not believe it would be helpful to specify how indicators were calculated, or the periodicity of indicators, or indeed which indicators should be assessed quantitatively or qualitatively. This should also be firm-specific.
No, the threshold must be defined by each institution depending on their risk appetite and risk management framework. The banks themselves are best-qualified to establish the quantitative and qualitative indicators, as they have the best knowledge of the nature, value of the business model, activities and strategic choices. Therefore banks in collaboration with their supervisors should establish the appropriate thresholds for each quantitative recovery plan indicator which is relevant to its business model and risk appetite.
We would like to remark on the difficulty of quantifying some of the indicators using the “traffic-light approach.”
See our general comments in the attached document
Question 2: Do you consider that there are other categories of indicators apart from those reflected in the draft Guidelines which should be included in the minimum list of recovery plan indicators?
See our general comments in the attached document.As stated above, we do not agree that macroeconomic indicators should be used and do not see the need for an overly prescriptive list of indicators. These should be determined by a firm and its resolution authority. We would also expect the minimum list to be restricted to capital and liquidity indicators, as stated above. Nevertheless, authorities should have the flexibility to use indicators similar management indicators that are monitored regularly by the entity which can be more valuable for decision-making if a recovery option has to be implemented.
In relation to the minimum and the additional list of recovery plan indicators, we consider that the minimum list is sufficiently extensive. Therefore, some of the additional indicators may be considered unnecessary for banks that do not have certain types of business or exposures. Some indicators are either highly correlated or somewhat repetitive. Some of the indicators listed in Section C of Annex I should be included in Annex II as illustrative examples of indicators that could be applied, rather than in the minimum list of categories of indicators.
Question 3: Do you agree with the list of specific recovery plan indicators included in Annex I, Section C, or would you propose to add other indicators to this Section?
See our general comments in the attached document.As we have noted in our answer to Question 2, while we agree with Section A and B as minimum recovery indicators, and we generally support banks using the categories of recovery indicators defined in Section C, the specific underlying indicators should either all be rebuttable or part of the illustrative list. This is because they may overlap with existing management indicators which may be better suited, or they may not be appropriate to all banks, or they are better as “early warning” indicators.
The EBF as stated above is of the opinion that indicators should be institution specific. However, greater clarity around whether indicators should be monitored / reported on a Group or legal entity basis should be given.
Furthermore, we note that the deviation from budget is difficult to calibrate and not necessarily an indicator of stress. Therefore we propose to exclude this indicator.
Similarly we do not believe it would be helpful to specify how indicators were calculated, or the periodicity of indicators, or indeed which indicators should be assessed quantitatively or qualitatively. This should also be firm-specific.
Question 4: Do you consider that these Guidelines should establish the threshold for each quantitative recovery plan indicator to define the point at which the institution may need to take recovery measures to restore its financial position?
See our general comments in the attached document.No, the threshold must be defined by each institution depending on their risk appetite and risk management framework. The banks themselves are best-qualified to establish the quantitative and qualitative indicators, as they have the best knowledge of the nature, value of the business model, activities and strategic choices. Therefore banks in collaboration with their supervisors should establish the appropriate thresholds for each quantitative recovery plan indicator which is relevant to its business model and risk appetite.
We would like to remark on the difficulty of quantifying some of the indicators using the “traffic-light approach.”
Question 5: Do you agree with our analysis of the impact of the proposals in this Consultation Paper? If not, can you provide any evidence or data that would explain why you disagree or might further inform our analysis of the likely impacts of the proposals?
No comment.See our general comments in the attached document