From resolution planning to operational crisis readiness in the Banking Union

The Single Resolution Mechanism (SRM) has the mandate to ensure an orderly resolution of failing banks, preserving financial stability and protecting the taxpayer. To deliver on this mandate, the Single Resolution Board (SRB) needs to ensure that the applicable legal framework translates into sound implementation for planning and execution of resolution of banks.

In this blogpost, I would like to share our perspectives on how we have been implementing operational crisis preparedness from a practical standpoint.

Since its establishment, the SRM has managed a number of crises, including the resolution of two institutions under the direct remit of the SRB. Building on these past experiences — as well as on dry run exercises and simulations — the SRB continues to improve its crisis preparedness and management capacities, together with the National Resolution Authorities (NRAs). The aim is simple: to be ready to address both known risks and emerging ones, as effectively as possible. New focus of SRM on operationalisation, resolution testing and crisis readiness lies at the centre of the SRM Vision 2028.

Operational crisis readiness

Building resilience and resolvability is an iterative process. Over the years, banks have steadily improved their resolvability profiles. However, it is not only banks that need to be ready – resolution authorities have done their part of work as well.

At the SRM, we have been preparing extensively to enhance our operational crisis readiness — basically, being able to act swiftly and take decisive measures tailored to each unique scenario. And this readiness is just as dynamic. It requires continuous refinement, regular evaluation, and constant adaptation to emerging threats. Above all, it demands a deep understanding of banks — their individual profiles, their systemic relevance, and the potential avenues for effective intervention.

What do we do to ensure readiness?

Numerous components underpin operational crisis readiness. At the SRM, operational crisis readiness rests on three pillars – policies and procedures, tools and trained people:

• Firstly, simplified crisis policies and procedures that enable prompt, decisive action. The SRB has developed ready-to-use materials covering the full crisis cycle, from early detection of a failing bank to post-resolution activities, and different types of resolution strategies, i.e. bail-in execution and transfer tools. The NRAs have drafted National Handbooks, in coordination with the SRB, detailing the processes for each jurisdiction.

• Secondly, the SRB has invested heavily in an operational toolkit. This includes, for instance, development of a bail-in calculator, a valuation tool and the Ready for Crisis platform, which ensures secure communication in crisis among key stakeholders.

• Thirdly, and most importantly, our people. We prioritise specialised crisis training, practical exercises and expert networks to foster a culture of preparedness across the SRM. This ensures our teams can turn their expert knowledge into effective action.

Operational crisis readiness also underpins on two critical elements: simulation exercises and valuation capabilities.

Simulation exercises

On top of the tests performed by banks, simulation exercises organised by the SRM are a fundamental component of our operational readiness. They not only evaluate the viability of resolution plans but also serve to complete them, revealing critical insights that may not be apparent during the planning phase.

The SRB regularly coordinates a series of ‘dry runs’ focused on practical testing of the execution of SRM capabilities of the resolution tools, such as bail-in execution or sale-of-business. Participants from the SRB and NRAs not only test the application of the tools but also the cooperation with key stakeholders, including the ECB and the European Commission. 

Valuation capabilities

Another important element of Operational Crisis Readiness is the capability to conduct valuation in crisis.

Accurate valuation is central to any resolution process. It enables the SRB to take informed and timely decisions, based on a comprehensive assessment of assets and liabilities. After all, you cannot apply resolution powers without reliable, high-quality data.

The recent publication of the SRB’s Expectations on Valuation Capabilities[1] aims precisely at enhancing banks’ preparedness to support timely and robust valuations. It sets out expectations on regularly updated resolution data repositories and on the development of clear valuation playbooks.

Data and valuation perfectly illustrate why banks and resolution authorities must be equally prepared. Banks may produce excellent data. However, that data is of little use if resolution authorities are not ready to analyse it and act on it swiftly. And on the other side, the SRB can have a perfect valuation tool, but it will not be helpful in crisis, if banks are not able to provide the needed data.

What lies ahead for the SRB? 

Looking ahead, several initiatives will further strengthen our crisis readiness while simplifying our processes. Expanding the scope of our dry runs will be central to this effort. The SRB has been implementing a multiannual dry runs plan, in the form of large-scale exercises enabling hundreds of resolution experts to be trained and to enhance their crisis readiness. 

Going forward, we will explore the possibility that these exercises be increasingly integrated with bank-led testing, fostering a coordinated and simplified approach in which banks and authorities jointly refine resolution methodologies.

In conclusion, over the past decade banks and resolution authorities have built substantial capabilities. Today, our focus is on ensuring that these capabilities are truly operational.