Aiming at resolvability
The Single Resolution Board
From 1 January 2016, a new institution – the Single Resolution Board (SRB) – will be empowered to require banks in the Eurozone to alter their legal, financial and operating structures in the pursuit of ‘resolvability’. Resolvability is a centrepiece of the new banking regulatory framework for ending ‘too big to fail’ by making bank failures manageable without the need for public funds.
This report looks at the SRB and its powers, and where banks should focus their attention to get on the front foot.
Resolvability in the Eurozone
Global systemically important banks (G-SIBs) have been engaged in resolution planning for several years, but the implementation of the EU’s Bank Recovery and Resolution Directive extends this responsibility to a much wider set of institutions, many of which will be less familiar with the theory and practice of resolution planning. The SRB will be responsible for overseeing the process for the Banking Union area, with direct responsibility for around 150 of the largest cross-border banking groups.
Resolvability may have a significant influence on banks’ operating models across a number of dimensions, and banks will want to maintain the initiative in order to adjust their operations on their own terms.
- The SRB will be responsible for resolvability assessments and will be empowered to mandate changes to banks’ legal entity, financial and operating structures to improve resolvability
- Banks should think about their governance structures, legal entity structures, the suitability of their liability structures for bail-in, their data capabilities, booking practices, and more.
- 2016 is likely to be about bringing all Banking Union countries “up to speed”, rather than immediately mandating changes to structures.
- Banks can take action in the near-term to retain the initiative by developing an understanding of their own resolvability, in order to adjust their operations on their own terms rather than those imposed by the authorities.