The dawn of the New Year is not the only time that we at the SRB think about resolutions – we do that every day of the year! Our focus is always on making banks resolvable so that we can promote financial stability and protect the taxpayer. However, the New Year is always a good time to take a closer look at our priorities for the next 12 months.
2021 saw the pandemic linger longer that we would have liked, but, nevertheless, the EU authorities, including the SRB, stepped up to the plate to deal with the challenges posed by Covid, and indeed progress was made on some long-term issues such as the common backstop. I am also pleased to report that the industry stayed on track to deliver, in line with our Expectations for Banks. MREL continued to be built up, and the same is true for the Single Resolution Fund. All of this is reassuring news.
The first is MREL build up: Banks under our remit have been able to raise capital and debt instruments and thus build up further the necessary MREL buffers at record low interest rates this year. I expect most of the banks under our remit to respect the January 2022 intermediate MREL target. We encourage all banks to continue to build up their MREL in this favourable market. Our message to the banks is clear: the market is wide open and they need to continue issuing. They know the requirements that they must fulfil until 2024 and it is up to them to decide upon buffers to keep them safe. Therefore, there is no reason to delay.
The second area of priority is separability and reorganisation plans. For mid-sized banks, the SRB is prioritising the work on transfer tools, separability and adjustments of MREL for such transfer tools. “Sale of business” is one of the tools in our toolbox. Nevertheless, we all know that it needs excellent and timely preparation and, of course, a willing buyer. It is a valid tool, not the magic wand. During 2021, we issued a guidance note on separability and we will continue to work on this area in 2022.
The third area is information systems and Management Information Systems.Thepandemic has brought about considerable advances in this area. While some banks have stepped up their efforts ], others are still lagging behind. We have observed banks’ reorganisation efforts to become more efficient and customer-focused. IT and cyber risks and their management, particularly regarding the timely availability of data, must be a key priority for banks and it will benefit resolution planning and crisis preparedness, too.
We will also continue our work on being crisis-ready, for example through crisis simulation cases. Ensuring our SPE strategy is operationalised fully is another area of focus and will hopefully help overcome the home-host friction that otherwise risks fragmenting the market and might have a negative impact on financial stability.
A more transparent assessment of resolvability has long been a key priority for the SRB. That is why we have defined a heat-map on assessing resolvability, designed as a tool to monitor, benchmark and communicate banks’ progress towards full resolvability. We are currently evaluating the first cross-cutting assessment based on the progress made by banks so far in form of such a heat-map. Achieving an overall consistent and also realistic assessment and heat-map is not an easy task, but it is a very valuable exercise – and we are clear in our communication to those banks that are lagging behind that they must get their house in shape. End 2023 remains the deadline for banks becoming compliant with the MREL-target and having reached resolvability in line with the Expectations for Banks. We stay committed to publishing an aggregated heat-map once the results are of sufficient quality, hopefully this year.
On top of these priorities, we will also continue to work with our European partners on completing the Banking Union, including finding an institutional solution for liquidity in resolution, making progress towards a common deposit guarantee system and work on a European framework for bank insolvency.
Together with the National Resolution Authorities, we aim to play our role in ensuring a more resilient banking sector that can help ensure recovery and financial stability in Europe and further afield in 2022 and for the years to come.
It is now a decade since the Liikanen Report was published. While the proposal for structural reform in the banking sector was not implemented in the EU, many of the ideas brought forward by the high-level expert group can be found in other regulatory...
Dr Elke König is Chair of the SRB, responsible for the management of the organisation, the work of the Board, the budget, all staff and the Executive and Plenary sessions of the Board. The Strategy, International Relations and Communications Unit and the Internal Audit function report directly to her.
She was President of the German Federal Financial Supervisory Authority (Bundesanstalt für...