The European Banking Authority (EBA) has published for consultation draft guidelines on the:

  • triggers for using early intervention measures (triggers for early intervention); and
  • circumstances under which an institution shall be considered as ‘failing or likely to fail’ (triggers for resolution).

The draft guidelines for triggers for early intervention are addressed to Member State national competent authorities (NCAs) and clarify the conditions for using early intervention measures under the Recovery and Resolution Directive (BRRD). The draft guidelines provide NCAs with guidance on the circumstances under which they should consider the application of early intervention measures to institutions. Specifically, the draft guidelines identify triggers within the proposed common European supervisory review and examination process framework and elaborate on the circumstances prompting the consideration of whether to apply early intervention measures. However, the draft guidelines do not establish any quantitative thresholds for indicators that could be perceived as new levels for regulatory requirements for capital or liquidity.

The BRRD provides for a general description of the circumstances in which an institution shall be deemed to be failing or likely to fail. The draft guidelines on triggers for resolution further specify those circumstances in order to ensure a consistent approach to triggering resolution, especially for cross border groups. In particular, the draft guidelines provide guidance on the objective elements that should guide NCAs in determining that:

  • an institution infringes, or is likely to infringe in the near future, the requirements for continuing authorisation in a way that would justify the withdrawal of its authorisation by the NCA, including but not limited to, because it has incurred or is likely to incur losses that will deplete all or a significant amount of its own funds;
  • an institution’s assets are, or there are objective elements to support a determination that its assets will be, in the near future, less than its liabilities; and
  • an institution is, or is likely to be in the near future, unable to pay its debts or other liabilities as they fall due.

While the determination that an institution is failing or likely to fail remains the discretionary assessment of the relevant NCA, the draft guidelines set out the elements on the basis of which this judgment should be based. In particular, the list of objective elements set out in the draft guidelines is not exhaustive and does not prevent the relevant NCA from taking into account other considerations signalling that an institution is failing or likely to fail.

The deadline for comments on both sets of draft guidelines is 22 December 2014.

View EBA consults on triggers for early intervention and resolution, 22 September 2014