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The future of resolution planning offices
Achieving sustainable recovery and resolution planning frameworks
Global systematically important banks (G-SIBs) have the opportunity to consider past progress and refine their resolution planning efforts to achieve long-term, sustainable frameworks. Learn more about the various organizational model approaches and ways for banks to optimize their resolution planning approach.
- Navigating the future of resolution planning
- Organizational model approaches: Centralized v. Federated models
- Evaluation of RRP activities and optimizing the approach
- Get in touch
Navigating the future of resolution planning
Many US G-SIBs have undergone significant management, business, and legal entity reorganizations, enhanced technological data systems, and taken a holistic approach to making their institutions more resolvable.1 A logical next step for these institutions is to review the organizational model in order to efficiently and accurately fulfill submission requirements, and adapt to potential recovery and resolution scenarios on a business as usual (BAU) basis.
In order to best navigate this process, institutions should consider four questions:
- What is the optimal structure for the resolution planning office?
- What type of governance structure is most suitable and effective for the timely flow of information and identification of potential issues?
- How are the resolution planning activities aligned to individual functions within the organization?
- How are the recommended retail price (RRP) initiatives managed and to what degree are these initiatives integrated into BAU activities within operating functions?
As the business and regulatory environment is in a state of perpetual evolution, it is crucial to be able to adapt promptly to meet regulatory requirements while providing the greatest value for the organization.
Organizational model approaches: Centralized vs. Federated models
Generally, institutions have adopted one of two approaches to organize their RFP efforts:2
- A centralized model, which consists of a large resolution planning office typically housed within the risk or finance function.
- A federated model, with functional groups such as finance, operations, technology, and human resources holding responsibility for the resolution plan content while a central resolution planning office serves as a consolidator and coordinator.
- A hybrid model is also possible, depending on the priorities of the organization.
A key component of the selected operating model should be to maintain strong resolution planning governance and oversight from a centralized group that effectively provides institutional planning, reporting, and resourcing assistance on an ongoing basis. Consistent, two-way communication is critical to effective execution of the RRP process.
Evaluation of RRP activities and optimizing the approach
As institutions consider potential adjustments to their organizational models, it is important to consider the maturity level of activities and how RRP-related activities are distributed, as well as whether potential realignment may be beneficial.
- Foundational planning activities are implemented to meet regulatory requirements.
- Robust planning activities create additional institutional value beyond meeting regulatory requirements.
This framework can be considered and applied across three areas: Core RRP Activities, Supervisory Activities, and Testing/Audit.
In the near term, institutions appear to be gaining some relief, as the annual resolution planning submission cycle appears to be transitioning to a potentially permanent two-year submission cycle.3 However, the fundamental existing regulatory expectations related to RRP capabilities are less likely to change, and in fact more material progress and continuous improvement may be expected between cycles.
Now is an opportune time for institutions to evaluate the structure of their internal RRP functions. Institutions should carefully weigh the benefits and costs of Centralized vs. Federated models, as well as the Foundational vs. Robust capabilities throughout this evaluation.
1 Board of Governors of the Federal Reserve System, Living Wills (or Resolution plans), available at https://www.federalreserve.gov/supervisionreg/resolution-plans.htm
2 The focus of this paper is on resolution planning efforts, but recovery planning is a critical part of crises and stress scenario preparation, and is commonly an adjacent activity within resolution plan offices.
3 Speech by Randal Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System, “Early Observations on Improving the Effectiveness of Post-Crisis Regulation” (January 19, 2018), available at https://www.federalreserve.gov/newsevents/speech/quarles20180119a.htm