The European Banking Authority (EBA) has published a comparative report on recovery options, which are crucial for assessing the actual capacity of institutions to regain viability following a period of severe financial distress.
The comparative analysis is based on thematic work that the EBA has conducted which compared the recovery plans of 23 European cross-border banking groups with parent institutions located across 12 different EU countries, focusing on how institutions have approached and developed their recovery plan options.
The comparative report is intended to help supervisors in identifying in their assessments the crucial elements that should be considered by institutions when designing and selecting credible recovery options. Moreover, resolution authorities also benefit from well-structured recovery plans, as the information provided therein is useful in developing resolution plans.
In general, the comparative report notes that all the recovery plans in the sample provided a good overview of recovery options and – with respect to plans that had been submitted in the past, prior to the entry into force of the Bank Recovery and Resolution Directive – clear improvements could be seen across the board with regard to analysis of financial impact, possible interaction with the scenarios and assessment of credibility. Nevertheless, the comparative report notes certain areas where challenges remain. In particular, the comparative report observes that the credibility and effectiveness of recovery plans could benefit greatly from a more detailed analysis of the links between recovery options and governance arrangements, and of the feasibility of options under each scenario. While all plans in the sample provided a financial impact assessment on key supervisory ratios, a number of recovery plans did not provide enough information on the assumptions used to support the valuation of options.