European Savings and Retail Banking Group

ESBG believes that it is relevant to define the reorganisation period and considers the current definition as sufficiently clear.
As there is no definition given for a ‘business line’, the concept is not sufficiently clear, in our view. Different institutions will use different concepts for the definition of ‘business lines’ and the level of granularity could vary significantly. This is, however, not considered a problem, as the business line definition should be proportionate to the activities and business model of a group or entity. This appears to be acknowledged by the EBA, at least in the context of recovery planning (see the EBA Report “Comparative report on the approach to determining critical functions and core business lines in recovery plans”, Section 4).

Having said this, according to Article 3(3)(c) draft RTS, liquidity, regulatory capital adequacy and MREL measures should be provided at group, entity and business line level. However, this requirement cannot be met at business line level, as regulatory ratios (including liquidity measures such as the LCR and NSFR) are only relevant, and can only be calculated at group and entity level (unless a business line is effectively its own legal entity). Where waivers exist, they may not even be relevant at entity level but only at group level.

What is more, the EBA could clarify that information at business line level is only required for measures providing information on financial performance, e.g. P&L contributions by business line and not for regulatory measures that are only relevant at a higher level of aggregation.
It is ESBG’s view that priority should be given to the elimination of shortcomings necessary to ensure the institution returns to be a viable going-concern entity as soon as possible. As such, the reorganisation plan should focus on the areas that caused the problems leading to resolution. In addition, these areas would have been investigated as part of the process to determine that the institution is likely to fail. Addressing shortcomings in the remaining business will require additional analyses, which will likely use resources that could be better deployed to ‘fix’ the issues that most contributed to the crisis.

Unless shortcomings in the remaining business have been detected as part of the analysis already undertaken and their remediation is directly linked to measures that need to be taken to address the reasons for failure, these should be de-prioritised in order not to divert management attention and resources from activities that are essential for restoring the longer-term viability of the institution.
ESBG does not believe that the reorganisation plan specifically needs to address these issues as they should have already been considered by the resolution authority when devising the resolution strategy. The resolution strategy should have concluded that bail-in is the most appropriate tool to maintain critical functions of the institution and as such ensure the functioning of the financial system and overall financial stability . The reorganisation strategy and measures – as mentioned above in our comments on Art. 3(8) draft RTS – should focus on activities necessary to support the implementation of the resolution strategy, i.e. the internal changes necessary to ensure that the resolution strategy achieves the objective of restoring the institution’s long-term viability.

Furthermore, ESBG does not believe that it would be appropriate to further detail the requirement. It is a key requirement of every resolution strategy that critical functions are maintained. Critical functions (including, as relevant, lending) would have been identified as part of the resolution planning process and the resolution strategy should have set parameters for the functions to be maintained. Hence, an assessment on whether the reorganisation plan is consistent with resolution strategy should be sufficient to ensure that the measures in the reorganisation plan do not impede the functioning of the financial system or the overall financial stability.
Given that the plan has to be drawn up by the management body or the person appointed in accordance with Article 72(1) BRRD, we do not fully understand why to separately require this commitment. In particular, it is not clear what format would be required to demonstrate the commitment as, presumably, the plan would have been signed/approved by the parties mandated by the BRRD, i.e. management or the person appointed. If an explicit commitment was required, the form in which this would need to be given should be specified further.
Since the BRRD explicitly requires a reorganisation plan only in the event of the use of bail-in to recapitalise an existing institution, the proposed Guidelines and RTS should not be applied in conjunction with other tools.

Leaving aside the legal aspect, ESBG does not consider any of the elements in the draft RTS or Guidelines relevant for a bridge institution. According to Article 40(2)(a) BRRD, the bridge institution itself has to be ‘wholly or partially owned by one or more public authorities which may include the resolution authority’ and ‘is controlled by the resolution authority’. Article 41(1)(b) BRRD also states that the resolution authority either ‘appoints or approves the bridge institution’s management body’. The resolution authority is also responsible for transferring assets and liabilities to the bridge institution when using the bridge institution tool, so it effectively has control over the risk profile of the bridge institution.

Any business plan of the bridge bank would thus be drawn up by management appointed or approved by the authority and the authority would have control over the bridge bank. Extending the requirements for a plan to the use of the bridge institution tool would in fact only touch upon matters of decision-making within the lines of control from/within the resolution authority to/and the bridge institution and does, therefore, not appear to be necessary.
Sebastian Stodulka