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[Introduction]
Ladies and Gentlemen,
Thank you for joining us this morning and a very warm welcome to the Single Resolution Board.
Many of you are familiar with the SRB building at this stage whether at this event or through our regular technical briefings, or getting in touch with our communications team, but regardless of whether it is your first or fiftieth time here – you are welcome! I will be as brief as possible in order to allow you time to ask questions to the board gathered here this morning.
[2018 Overview]
2018 was another busy year for the SRB. We continued our policies to ensure that we promote financial stability while ensuring that the taxpayer is protected. This year there was no resolution case to be managed, perhaps due to our good work on recovery and resolution planning!
In order to ensure resolvability for significant institutions under our remit, but also less significant institutions, the SRB continued its close and successful cooperation with the National Resolution Authorities through internal resolution teams.
We worked on 109 resolution plans for the 2018 resolution planning cycle, which has been split into two waves. The first wave consists of banks with no activity in non-Banking Union Member States while the second wave comprises the more complex, internationally active banks. For this second group, resolution colleges with the non Banking Union countries need to be organised and the process takes longer. But this is also the group that had already binding MREL targets and now these are being refined with more stringent features.
When it comes to resolution planning, the SRB updated its resolution planning manual which incorporates the latest array of tools and policies, a public version of which shall be available later in the year, clearly spelling out our expectations towards banks.
Banks themselves should be clear by now on what they have to do to make themselves resolvable due to the ongoing interaction with our teams. However, this manual will hopefully give further external visibility of the topic.
To move on with the stocktake, the SRB continued to provide its technical expertise during the negotiations on the Risk Reduction Package and the fiscal backstop which thankfully saw an agreement in December.
We also concluded an additional four bilateral cooperation arrangements — with the Central Bank of Brazil, the National Bank of Serbia, the Bank of Albania and Mexico’s Institute for the Protection of Bank Savings. I hope there will be many more to come.
Concerning crisis preparedness, the SRB continued its internal work on important projects such as the valuation project and the creation of a dedicated Resolution Tactical Team in order to optimise crisis workflows. In addition, three dry-run exercises were carried out together with the other relevant institutions.
In 2018, the Single Resolution Fund collected EUR 7.5 billion of ex-ante contributions to achieve the target level of the fund in 2024. The amount held in the SRF is now EUR 24.9 billion. We expect to further build up the SRF to over 30 billion this year with contributions due by 30 June 2019.
Last but not least, in 2018 the SRB further intensified its communication with the banks under its remit in numerous presentations, dedicated workshops and two industry dialogues. This is all with the aim of ensuring banks know what is expected from them to be considered resolvable.
[SRB – More to do]
We have made good progress, but there is still much more to do. As I have said before, the journey to resolvability is a marathon, not a sprint.
Looking forward on our MREL policy, as you know the SRB has taken a gradual, multi-year approach to MREL. The goal is to maintain proportionality in the system while preserving a level playing field and upholding high resolution standards across the Banking Union. We have gradually moved from setting informative to binding MREL targets for banking groups under our remit. MREL cannot be built-up over night by the banks, so the SRB allows for transitional periods to meet the targets where necessary.
The latest SRB policy for the most complex banks, published in January, enhances the quality and quantity of MREL by introducing a series of new features to strengthen banks’ resolvability. Just to mention some new elements: stricter eligibility of instruments for consolidated MREL-targets, an increased minimum requirement of subordinated liabilities, an introduction of binding MREL targets at individual level that can be met with intra-group liabilities.
This latest policy is, of course, grounded on the currently applicable legal framework. But it also strives to facilitate, to the extent possible, the transition for banks towards upcoming new rules which indeed provide for, inter alia, a minimum statutory requirement for subordinated liabilities and a framework for setting internal MREL. In the resolution planning cycle of 2019, the SRB expects to adopt more than 100 group-level MREL decisions, and to determine MREL targets for over 530 individual entities.
The lack of sufficient MREL can be an important barrier to executing the resolution strategy, but it is not the only necessary condition for resolvability. Availability of data, legal structures and operational continuity remain key topics.
Another area of policy work which might be a longer term project relates to the improvement and harmonisation of insolvency laws in the EU.
While the backstop to the SRF is now agreed in principle, a framework for liquidity in resolution still needs to be developed. And of course the third pillar of the Banking Union, the European Deposit Insurance Scheme is missing. How far we are from that becoming a reality is anyone’s guess.
[2019: A period of transition awaits the SRB]
So far we have built good foundations in resolution planning. 2019 sees the SRB enter into the second year of our multi-annual plan, published at the end of 2017, which - as a reminder - contains five key priority areas. These are:
1. Strengthening resolvability for SRB entities and less significant institutions, in other words, the smaller banks;
2. Fostering a robust resolution framework;
3. Preparing and carrying out effective crisis management;
4. Operationalising the Single Resolution Fund, and
5. Ensuring the SRB is an efficient organisation.
Progress has been made in all five areas. It has perhaps not always been as speedy as one would like, but these are very complex topics.
Now, we are moving from the stage of setting up the framework and the foundations of resolution planning, to the implementation phase – the nitty gritty if you like. As time moves on, adjustments are being made to the framework to help the SRB be as effective as possible in our work promoting financial stability while protecting the taxpayer. And of course we are preparing to adapt to the new regime under BRRD2. Here the good news is that it will strengthen MREL in general and that it will be a continuation of our MREL policy to be built on step-by-step.
To leave you with a simplified picture: the SRB’s role is to set policies, analyse the bank and point towards steps to be taken to make them resolvable.
The banks’ role is to make themselves resolvable, with the SRB monitoring their progress.
The NRAs, on their part, are to propose national handbooks to prepare implementation of decisions.
[Brexit]
Let me add some comments on Brexit before finishing.
The SRB is closely watching the events in the UK in relation to whether and under what arrangements the UK will leave the EU. All stakeholders in financial regulation are keeping the situation continuously under review and are working together for the common cause of financial stability. Preparations have been made, so the situation appears manageable. There may be volatility but given the level of preparedness there should be no imminent risk to financial stability.
The SRB has consistently maintained its expectations in relation to resolvability in the context of Brexit, reiterated clearly in the Brexit Position Paper published in November 2018, aligned with the EBA’s opinions. This included expectations for banks relocating to the EU27. The relevant internal resolution teams have been working closely with individual banks to implement these expectations, in preparation for any market instability.
So, as I said, we are watching developments as closely as everyone else, and we wait to see what comes out of Westminster this week.
[Conclusion]
I have said it before, but it’s worth repeating - Resolution planning is a process not a product. There is always something new to deal with and plan for, but I suppose that is what keeps the topic interesting.
I want to thank you for your interest, thank you for getting in touch with our communications team over the past year – without you we cannot continue to emphasise the important role the SRB plays in promoting financial stability while protecting the taxpayer.
Now I will stop there so that you have a chance to speak and ask questions of us as a Board. Thank you.
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