Response to consultation on Regulatory Technical Standards and Guidelines on Business Reorganisation Plans
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However, the concept of entity level is less relevant, especially for a Single Point of Entry resolution strategy. The focus should be on group level and Significant Legal Entities only, which are systemically relevant. This would ensure consistency with the spirit of the BRRD. The reorganisation plan should focus on key divisions of the bank, except where there is a specific change to other divisions or shortcoming which led to failure and need to be addressed in the reorganisation strategy.
Nevertheless, just after resolution, a bank’s priority would be to define measures to stabilise the bank and prevent systemic risk. The focus would need to be on shortcomings, which may have led to failure or shortcomings impacting critical economic functions or core business lines.
Beyond this, the resolution authority does not have a mandate for making pronouncement on a bank’s business model or business plan. Therefore, we consider that the RTS should not refer to “any shortcomings in the remaining business” which would go beyond the role of the resolution authority. Where there is no link to the causes of failure, authorities do not have the expertise to analyse whether aspects of the business are “shortcomings”.
The RTS should ask banks to look at the impact of the reorganisation strategy on critical economic functions, rather than the functioning of the financial system and the overall financial stability. We would also be able to look at the impact on lending for instance.
Moreover, the RTS require the Plan to set out the assumptions, regarding the expected macro-economic and market developments underlying the reorganisation strategy in a base case, and a comparison of those assumptions with sector-wide benchmarks. However, it is important to note that in the context of systemic financial crisis, there will not be reliable benchmarks available. In the middle of a crisis, there will be only very limited information available on market environment.
If a special manager was to prepare the reorganisation plan, we consider that the Plan would need to be revised and resubmitted when the special manager steps down and the new senior management is appointed. As stated above, the managers need to own the reorganisation strategy.
In terms of governance, it is important to establish a dialogue with shareholders. The new shareholders of the bank would have to be informed of the reorganisation plan as they would ultimately – once they recover their full voting rights - have the right to vote on the strategic direction of the bank at the Annual General Meeting (AGM). The bank would need to convince the new shareholders of the reorganisation strategy’s efficiency, especially given the special nature of investors interested in an institution under resolution (i.e. investors able to take a countercyclical view and to absorb the volatility in a crisis).
Moreover, we recommend that Article 3 refers specifically to the independent valuer’s valuation.
Finally, we would like to highlight that in order to facilitate the planning process the resolution authority should be as transparent as possible and work closely with the institution under resolution.
2. Is the concept of “business line” sufficiently clear? Can measures and performance be provided at a “business line” level?
We understand the concept of business lines as the key divisions of the bank and we consider it particularly relevant for a reorganisation plan.However, the concept of entity level is less relevant, especially for a Single Point of Entry resolution strategy. The focus should be on group level and Significant Legal Entities only, which are systemically relevant. This would ensure consistency with the spirit of the BRRD. The reorganisation plan should focus on key divisions of the bank, except where there is a specific change to other divisions or shortcoming which led to failure and need to be addressed in the reorganisation strategy.
3. Do you agree that an institution under resolution should use the reorganisation opportunity to address any shortcomings in the remaining business?
As a general principle, senior management focus on addressing strategic shortcomings on an ongoing basis, therefore the reorganisation plan will take this dimension into account.Nevertheless, just after resolution, a bank’s priority would be to define measures to stabilise the bank and prevent systemic risk. The focus would need to be on shortcomings, which may have led to failure or shortcomings impacting critical economic functions or core business lines.
Beyond this, the resolution authority does not have a mandate for making pronouncement on a bank’s business model or business plan. Therefore, we consider that the RTS should not refer to “any shortcomings in the remaining business” which would go beyond the role of the resolution authority. Where there is no link to the causes of failure, authorities do not have the expertise to analyse whether aspects of the business are “shortcomings”.
4. Is it appropriate to consider the impact of the reorganisation strategy and measures on the functioning of financial system and the overall financial stability?Would it be appropriate to further detail the requirement regarding the impact of the reorganisation strategy on specific metrics, such as lending?
A bank would be able to share its views and comment on the impact on the financial system and the overall financial stability, but it would be difficult to quantify. The resolution and supervisory authorities would be better positioned to look at the wider impact, given that they have information on other institutions that might be facing difficulties at the same time.The RTS should ask banks to look at the impact of the reorganisation strategy on critical economic functions, rather than the functioning of the financial system and the overall financial stability. We would also be able to look at the impact on lending for instance.
Moreover, the RTS require the Plan to set out the assumptions, regarding the expected macro-economic and market developments underlying the reorganisation strategy in a base case, and a comparison of those assumptions with sector-wide benchmarks. However, it is important to note that in the context of systemic financial crisis, there will not be reliable benchmarks available. In the middle of a crisis, there will be only very limited information available on market environment.
5. Is it feasible to obtain a commitment from the managers of the institution about the implications of the Plan and the appointment of responsible individuals in the institution for the implementation of the Plan?
The managers of the institution have to be responsible for the preparation of the reorganisation strategy and follow closely its implementation. We welcome the EBA’s approach which draws on the experience of State Aid processes.If a special manager was to prepare the reorganisation plan, we consider that the Plan would need to be revised and resubmitted when the special manager steps down and the new senior management is appointed. As stated above, the managers need to own the reorganisation strategy.
In terms of governance, it is important to establish a dialogue with shareholders. The new shareholders of the bank would have to be informed of the reorganisation plan as they would ultimately – once they recover their full voting rights - have the right to vote on the strategic direction of the bank at the Annual General Meeting (AGM). The bank would need to convince the new shareholders of the reorganisation strategy’s efficiency, especially given the special nature of investors interested in an institution under resolution (i.e. investors able to take a countercyclical view and to absorb the volatility in a crisis).
Moreover, we recommend that Article 3 refers specifically to the independent valuer’s valuation.
Finally, we would like to highlight that in order to facilitate the planning process the resolution authority should be as transparent as possible and work closely with the institution under resolution.
6. The BRRD requires for a Plan apply only in the event of use of the bail-in tool to recapitalise an existing institution. Are any of the provisions of the RTS and GL relevant in the event of use of the bridge institution tool, given the requirement that the resolution authority must approve the strategy and risk profile of the bridge institution? If so, which provisions do you consider relevant and why?
Although it would be logical and useful to do the same type of planning exercise in the event of use of the bridge bank tool, we do not think that it would be feasible to prepare a reorganisation plan under the same time constraints as required in the BRRD for use of the bail-in tool, especially given the complexity of setting up a bridge bank.Upload files
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