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New Developments in Risk Management > Lecture 5 Resolution > Flashcards

Lecture 5 Resolution Flashcards

1
Q

What are the three pillars of Banking Union & BRRD/SRMR?

A
  1. Single Supervisory Mechanism headed by ECB
  2. Single Resolution Mechanism headed by ECB
  3. European Deposit Insurance Scheme
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2
Q

What is the mission of the SRB (single resolution board)?

A

The mission of the SRB is to ensure an orderly resolution of failing banks with minimum impact on
the real economy and the public finances of the participating Member States of the Banking Union

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3
Q

Where is the SRB (Single Resolution Board) responsible for?

A
  • The entities and groups directly supervised by the European Central Bank
  • Other cross-border groups
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4
Q

What are the five objectives of the SRB?

A
  • Ensure SRM banks are resolvable
  • Maintain continuity of critical functions even when banks are resolved
  • Safeguard financial stability of the EU
    and individual SRM Member States
    -Protect public funds by minimising
    costs to taxpayers
    -Protect covered depositors & investors, client funds and client assets
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5
Q

What are the five main tasks of the SRB?

A
  • Prepare resolution plans
  • Set and Monitor MREL
  • Assessment of resolvability and removal of impediments
  • Elaborate and enact resolution schemes
  • Administer the Single Resolution Fund (SRF)
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6
Q

Resolution

A

RESOLUTION is:
* the restructuring of a bank by a resolution authority via the use of resolution tools, in order to ensure the continuity of its critical functions and preservation of financial stability

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7
Q

Which three things do the resolution authority determines?

A
  • If a bank is failing or likely to fail (FOLTF)
  • if there are no private sector/supervisory measures available within a reasonable timeframe
  • if the resolution is in the public interest
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8
Q

Which different tools can be used to to safeguard the public interest at minimal cost to taxpayers.

A
  • Sale of business tool
  • Brigde institution tool
  • Asset seperation tool
  • Bail-in tool
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9
Q

What is meant with the Sale of business tool?

A

The shares or other
instruments of
ownership of, or (all
or part of the)
assets, rights and
liabilities of, a bank
may be sold to a
private purchaser
without shareholder/
bank consent

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10
Q

What is meant with the Bridge institution tool?

A

The shares or other
instruments of
ownership of, or (all
or part of the)
assets, rights and
liabilities of, a bank
may be transferred
to a temporary
institution controlled
by the SRB/NRA.

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11
Q

What is meant by the Asset Seperation tool?

A

Assets, rights and
liabilities can be
transferred to an
asset management
vehicle, totally or
partially publicly
owned, if liquidation
of the assets could
cause market
disruption

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12
Q

What is meant by the Bail-in Tool?

A

Equity and debt can
be written down and
converted to
recapitalise a bank,
placing the burden
on shareholders and
creditors of the bank
rather than on the
public

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13
Q

What are the six steps of the resolution planning process?

A
  • Single or multiple point-of-entry
  • Identify obstacles
  • Remove obstacles
  • (Re-)draft resolution plan
  • Determine possibility to liquidate
  • If not, decide on resolution strategy
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14
Q

What are the purposes of the Resolution Planning process?

A
  • To obtain a comprehensive
    understanding of a bank and
    its critical functions;
  • To identify and address any
    impediments to its resolvability;
  • To be prepared for its resolution if needed.
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15
Q

2 statements about Resolution Planning process

A
  • RESOLUTION PLANNING IS AN ONGOING PROCESS
  • Resolution plans are to be drafted
    and updated at least annually
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16
Q

What are the five steps on the path towards resolvability?

A
  • Dedicate sufficient management time
  • Reduce complexity
  • Update information systems
  • Internal valuation systems to generate bank asset values
    in resolution
  • Capture internal and external inter-connectedness
17
Q

What are seven dimensions of expectations of Banks?

A
  • GOVERNANCE
  • COMMUNICATION
  • OPERATIONAL CONTINUITY
  • LIQUIDITY AND FUNDING IN RESOLUTION
  • INFORMATION SYSTEMS / DATA REQUIREMENTS
  • SEPARABILITY AND RESTRUCTURING
  • LOSS ABSORTION AND RECAPITALISATION CAPACITY
18
Q

Single Resolution Fund

A
  • A single, fully-mutualised fund
  • Financed by ex ante contributions
  • Shortfalls may be financed by ex post contributions or borrowing
19
Q

What can the SRF be used for and is subjected to what?

A

the SRF can be used to ensure the effective application of the resolution tools.

It can be used for liquidity support or
for capital measures.

Subject to loss absorption and
recapitalisation totalling not
less than 8% of the total
liabilities including own funds
of the institution

20
Q

What is the Common Backstop?

A

The Common Backstop is a revolving credit line, that will be provided to the Single Resolution Fund by
the European Stability Mechanism

21
Q

What does the Common Backstop cover?

A

It will cover all uses of the Single Resolution Fund, including liquidity provision (subject to, where needed,
adequate safeguards) and be the same size as the target level of the SRF at the end of transitional period

22
Q

Who pays the back stop?

A

The backstop will be paid for by the banking sector, and not taxpayers

23
Q

What are the four principles of the common backstop?

A
  • Available as a last resort
  • Fiscal neutrality over the medium term
  • Equivalent Treatment across all Banking Union Member States
  • No costs for Member States that do not participate in the Banking Union
24
Q

What are the conclusions of the SRB?

A
  • Resolution planning and resolvability are not
    end-points, but a journey, shared with the NRAs
    and the banks,
  • Resolution planning and resolvability are not
    end-points, but an iterative process. We get
    better at every turn.
  • A common backstop for the SRF and an EDIS
    are necessary to complete the Banking Union,
  • A workable, credible common backstop for the
    SRF is important,
  • Taxpayers must never again be allowed to foot
    the bill for failing banks

New Developments in Risk Management (6 decks)

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