On 13 August 2024, the European Banking Authority (EBA) published its European Resolution Examination Programme (EREP) report.
The EREP priorities highlights the topics on which EU banks and resolution authorities need to pay special attention in the next calendar year.
2025 priorities
The EREP priorities for 2025 mainly confirm the areas of focus set for 2024, given their relevance and the fact that work on these complex topics will extend over multiple years. Three 2024 EREP priorities – (i) operationalisation of the resolution strategy, (ii) management information systems for valuation and (iii) operationalisation of the liquidity strategy in resolution – will continue for 2025, although with updated objective elements.
In terms of operationalisation of the resolution strategy, resolution authorities are expected to continue their work for effective operationalisation of the preferred and variant resolution strategies in order to be ready for execution. In this respect, as a specific attention point, work should be performed on the identification of a variant resolution strategy to be executed in circumstances in which the preferred resolution strategy cannot be successfully implemented.
For management information systems for valuation, progress is expected on data production, accuracy and quality. In particular, resolution authorities and banks are expected to have a clear understanding of the time needed for the delivery of specific reports, operationalising the setting up of a virtual data room, including identifying possible concurrent technical solutions, and gaining assurance on the completeness and accuracy of data. Resolution authorities should include appropriate specific testing activities focusing on these aspects in their multi-annual testing programme.
As regards liquidity strategies in resolution, resolution authorities should, among other things, assess, the feasibility of banks’ proposed strategies to ensure liquidity in resolution, in particular in terms of collateral identification, mobilisation and reporting.
Progress achieved in 2023
The report also looks at the progress achieved in 2023 and identifies areas of improvement.
For 2023, the EBA had set four key priorities to follow for resolution authorities: (1) addressing minimum requirement for own funds and eligible liabilities (MREL) shortfalls, (2) management information systems for valuation, (3) liquidity needs in resolution and (4) operationalisation of the bail-in tool. The main findings include:
- With institutions in general meeting their MREL targets, resolution authorities are increasing their monitoring activity for MREL eligibility and quality. A main concern is noted with respect to effectiveness and limited legal certainty regarding the enforceability of bail-for contracts governed by third-country law. The EBA will keep monitoring and sharing best practices in quality assurance of MREL.
- Banks are expected to have in place satisfactory management information systems for valuation by the end of 2024, observing progress over 2023. Resolution authorities indicate a heterogeneous picture of progress across banks, with some having significant persisting gaps in data quality, automation, granularity and timeliness.
- Assumptions and strategies for ensuring liquidity in resolution are being reconsidered by a number of resolution authorities, following the spring 2023 failures. Also, additional work on the mobilisation of collateral, in particular related to assets non-eligible for ordinary monetary policy operations, is a clear focal point.
- For the operationalisation of the bail-in tool, resolution authorities consider that there is still a low level of preparedness and awareness among stakeholders, with potential to cause challenges in the event of its operationalisation. These potential issues relate to identifying holders of instruments, suspension of trading or requirements for issuing prospectuses for the new instruments and are particularly prominent in relation to third-country stakeholders.