Article

Solvent wind-down

Gearing up for winding down

In 2019, we expect the European Central Bank (ECB) and Single Resolution Board (SRB) to request an increasing number of banks to conduct solvent wind-down (SWD) analysis. Eurozone banks should look to leading practice from the UK and US to optimise their approach and minimise compliance costs, and to reap the business benefits SWD can bring.

SWD is a regulatory exercise that seeks to ensure that banks are prepared to dissolve some or all of their operations in an orderly way (with a particular focus on investment banking activities) in a situation where neither the continuation of the business nor the restructuring of operations are viable options.

SWD is mature in the UK and US, where regulators have requested banks to complete exercises for a number of years. However, with the ECB and SRB increasingly requesting SWD analysis on a bank-by-bank basis in the Eurozone, and the Financial Stability Board (FSB) consulting on international standards in 2019, banks in the Eurozone and further afield may soon be faced with requests to conduct SWD analysis.

In this handout, we look at the key challenges banks are likely to face when asked by regulators to conduct SWD analysis for the first time, and consider the lessons learned by UK and US banks. These include:

  • inconsistent and/or unrealistic assumptions;
  • database construction and reconciliation breaks;
  • project management stakeholder buy-in;
  • scalable systems and capabilities; and
  • process and controls assurance.

In addition, we explore the areas where banks should look to future-proof their SWD capabilities. These include:

  • stress scenarios;
  • portfolio segmentation;
  • cost analysis;
  • capital and liquidity; and
  • rump analysis
Solvent wind-down

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