Drafting resolution plans
The Financial Stability Authority draws up resolution plans for credit institutions and investment firms. The Authority is responsible for drafting such plans for smaller institutions. As regards large institutions, the responsibility for preparing resolution plans lies with the Single Resolution Board, but the planning takes place in cooperation with the Financial Stability Authority. These plans are drawn up for the institutions at group level. Resolution plans for foreign groups are drafted in resolution colleges under the leadership of the resolution authority of the institution's home state.
A resolution plan provides for a situation where a credit institution or investment firm is failing. A strategic business analysis is undertaken to identify the resolution strategy which is the most appropriate for the institution. The plan must specify the measures to be taken in a crisis situation in order to ensure continuity of the critical functions provided to third parties by the institution. The effectiveness of the resolution strategy is tested for different crisis scenarios. The resolution is to be carried out in a manner ensuring that adverse consequences for financial stability are minimised. The resolution should also protect depositors, and bank customer assets and property. The plans must not assume extraordinary public financial support or central bank emergency liquidity assistance.
The Resolution Act empowers the Financial Stability Authority to take different types of decisions in respect to institutions falling within its remit. Some of the decisions are already taken during the resolution planning phase and may thus apply to operationally viable and financially sound institutions.
As a rule, a resolution plan is drawn up for each institution annually. For small institutions and other institutions of minor significance for the financial system, simplified plans may be prepared and updated less frequently. The Financial Stability Authority decides on applying institution-specific simplified obligations. The Financial Stability Authority must assess the impact of the institution's entering into insolvency proceedings on the operation of the financial markets, other institutions, the availability of finance and the wider economy. The Financial Stability Authority cooperates with the Financial Supervisory Authority (FIN-FSA) in order to ensure consistent application of simplified obligations in recovery and resolution plans.
The Financial Stability Authority is also required to assess the institution's resolvability at the same time as it drafts or inspects the institution's resolution plan. If the Financial Stability Authority then determines, after consulting with the FIN-FSA, that there are material impediments to the institution's resolvability, it must notify the institution thereof in writing. If the institution is unable to put forward sufficient measures for removal of such impediments, the Financial Stability Authority may require the taking of different measures by the institution. Such measures may concern, among other things, limitation of the institution's exposures, sale of assets, restriction or termination of individual operations or changes in the institution's legal structures.
The institution must at all times meet, at institution-specific and consolidated level, at least the total minimum requirement determined by the Financial Stability Authority for own funds and eligible liabilities subject to write-down and conversion powers (the MREL requirement). Any decisions on the minimum requirement for own funds and eligible liabilities are to be taken as part of the formulation of the resolution plan.
The Financial Stability Authority has no independent powers to impose administrative sanctions on institutions, but any sanctions for failure to deliver information required for drafting resolution plans will be imposed by the FIN-FSA upon proposal by the Financial Stability Authority.
An Introduction to Resolution Planning has been published on the Single Resolution Board’s web-site.