EBF advisor: Timothy Buenker
Publication date: 20 April 2018
The Bank Recovery and Resolution Directive (BRRD) is aimed at enabling resolution authorities to restore the viability and solvency of a bank in resolution. The existing resolution tools are focused on loss absorption and recapitalisation (together with restructuring). The implicit assumption in BRRD is that once the institution’s own funds are restored, it will be possible to access funding to refinance its liabilities as they fall due. Nevertheless, as the Financial Stability Board (FSB) pointed out “potential market volatility and information asymmetry create funding risk for a recapitalized institution after resolution.”1
Although from a regulatory point of view we do not see any obstacles or insufficient legal tools to provide resolved banks with liquidity during a resolution scenario, we think that the legal framework can be improved in two ways:
▪ Provide more powers and more clarity to the existing mechanisms which could potentially provide a resolved bank with liquidity in a resolution scenario (e.g. national central bank monetary policy, resolution fund);
▪ Allow for a credible and quickly available public sector backstop from central banks in order to avoid contagion and market disruption if market confidence is not yet sufficiently restored for the resolved bank to raise funding by itself. The mere existence of this tool, could help resolved banks to raise funds in the capital markets without the need to use the public-sector backstop itself.
EBF Members call for a credible and effective public sector backstop funding mechanism, which is quickly available to solvent institutions, for the rare cases where it will be necessary to complement the tools available under BRRD, in order to safeguard market confidence and sustain private sector counterparties to provide funding to a financial institution in resolution.
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]]>EBF adviser: Saif Chaibi
Publication date: 2 February 2018
Key points:
- The success of the resolution process depends, to some extent, on the information quality provided by the resolution entity. Aiming to improve the efficiency and the information quality, more visibility on the resolution plan would be useful.
- Information is crucial to achieve the resolution objectives. However, we think that information requirements should be governed by two principles:
- Stability: Information requirements should remain stable during the resolution planning stage.
- Materiality: Entities are involved in thousands of operations every day. For that reason, proportionality should apply (in particular only information that is necessary for the preferred resolution strategy should be required).
- Different criteria applied by different resolution authorities when implementing the discretionary power to exclude liabilities from bail-in could create a problem of level playing field. A set of common enforceable principles to be used by all resolution authority is recommended.
- The “no creditor worse off” principle is a key element in the resolution framework. For that reason, authorities should make efforts to align the rankings in the resolution framework and the insolvency framework.
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The post Principles on bail-in execution – EBF response to FSB consultation appeared first on EBF.
]]>EBF adviser: Saif Chaibi
Publication date: 2 February 2018
Key points:
- EBF supports the approach provided by the Financial Stability Board (FSB) which aims at operationalising funding within the resolution planning.
- As recognized in part 4, banks in resolution situations should have the guarantee of a credible public back stop for use when necessary, with a clear understanding of the liquidity resources available and conditions to be met.
- A clear message needs to be sent following a resolution process that the bank is solvent again and that access to liquidity sources will mitigate concerns and facilitate private investors to step in.
- Conservative liquidity indicators such as the LCR and NSFR should neither be duplicated nor recalibrated for resolution. The LCR quantifies liquidity needs in a stress scenario for 30 days. If a resolution strategy cannot be implemented during this period then the resolution strategy might not be the right answer.
- Responsibilities between authorities and banks should be clarified. The fulfilment of “the principles for sound liquidity risk management and supervision” proposed by BCBS should be enough to cover section 1 of the FSB consultation paper. However, in order to get organised and act quickly to estimate liquidity needs, the communication between resolution authorities and banks should be guaranteed.
- We support the elements in the consultative document that confirm that home and host resolution authorities, central banks and supervisors should cooperate to support the consistent and effective implementation of group-wide and local funding plans, as well as establish clear protocols and division of responsibilities during both a resolution scenario and the events leading up to that point, and that plans should be detailed and established timely, in advance and to fit banks with cross-border banking models. These plans should then e.g. include how collateral can be utilised, even if eligibility criteria between central banks differ and cash is needed in currencies which differ from collateral the bank is holding.
- A bank should be allowed to be in breach of its LCR/NSFR in the first steps of resolution or at least to be able to take central bank eligible assets into account in the reserves for LCR and NSFR computation.
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]]>FSB consultation on sound compensation practices – EBF response
Date: 30 August 2017
EBF Advisor: Blazej Blasikiewicz
The European Banking Federation has responded to the consultation of the Financial Stability Board on “Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices.”
EBF considers that the Board of directors at Group level should be responsible for reviewing and validating the Group compensation policy. The policy and principles validated by the Board of directors at Group level could be adapted by each subsidiary according to any necessary modification, in particular to accommodate differences in local legislation. The operational implementation of these compensation principles, the day-to-day monitoring of the compensation policy and the effective management of compensation and misconduct risk should remain the duty of senior managers.
All three tools proposed to address misconduct: in-year adjustment, malus, and clawback, can be used to address misconduct. We believe that combination of those three tools (or two, in countries where clawback provisions are not allowed) is enough and appropriate to address misconduct situations. Moreover, we consider that the variable compensation should be sufficient enough to be adjusted in case of economic downturn and/or in case of misconduct to have material impact on employees’ behaviour.
Finally, EBF considers that compensation is important to address misconduct but should not be the only key driver to address conduct risk. Indeed, a strong governance process with the promotion of compliance and risk culture for all Group employees with a clear communication of Group Code of Conduct requirements including identification of bad and good behaviour, and mandatory training (including via e-learning) on conduct expectations together with the promotion and reinforcement of positive employee behaviour on risk and compliance management are also relevant and efficient means to address misconduct risk and to improve institutions’ conduct culture
Click on the link below to find the full EBF response.
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