The European Banking Authority (EBA) has published a comparative report on governance arrangements and indicators for recovery plans.
Key points in the report include:
- that in general, clear improvements can be seen across the board in relation to the governance arrangements of bank’s recovery plans;
- however, there are several areas where some challenges remain. In particular the main area for improvement is the limited involvement of local management in developing and updating the group plan and consequently the need for more detail on the steps taken to ensure the coordination of action at the group and local levels;
- that some recovery plans envisage that competent authorities should be notified only in cases when the bank applies recovery measures. It should be noted that the Bank Recovery and Resolution Directive requires the notification to be made after the escalation procedure triggered by the breach of recovery indicators;
- group recovery plans often provide little detail regarding the interaction between escalation and monitoring procedures applied at the group and local level; and
- most banks understand the need to have a broad set of metrics regularly monitored in order to flag any potential signs of distress in a timely manner and to incorporate them within their risk management framework. However, some banks have limited their indicators to only two categories (capital and liquidity), whereas the other categories (asset quality, profitability, market-based indicators, and macroeconomic indicators) were only considered as early warning signals (which cannot trigger the recovery escalation procedure) or, in a few cases, not considered at all. The calibration of recovery indicators also constituted a challenge for many institutions, particularly in terms of setting thresholds for capital ratios.