Resolution capabilities of banks
A successful resolution requires the troubled bank to have capabilities to support the resolution situation. The Financial Stability Authority (FFSA) requires banks to prepare for a potential crisis situation by developing and maintaining their resolution capacities. Banks must be resolvable.
The resolution capabilities required of banks include seven dimensions.
- Governance: The bank’s decision-making in resolution situations must be efficient. The governance arrangements and related processes must support the production of high-quality and up-to-date information, both in the planning and implementation of resolution measures.
- Loss absorption and recapitalisation capacity: The banks must ensure that they have sufficient own funds and eligible liabilities in their balance sheets for loss absorption and recapitalisation in resolution. The banks must continuously fulfil their MREL targets. The banks must also ensure that any debt instruments issued in third countries can be written down or converted. The banks must describe in a playbook how they would act in a situation where the FFSA applied the bail-in tool.
- Liquidity and funding in resolution: The banks must be able to forecast their own liquidity, also when facing a crisis. Each bank must have the capabilities and processes to identify assets that can be used as collateral to obtain liquidity in a resolution situation. In addition, each bank must have the capability to report its liquidity position and the amount of collateral available.
- Operational continuity and access to financial market infrastructures: The bank must determine the processes, risk management, and governance arrangements related to operational continuity. The bank must maintain a list of agreements that are relevant for operational continuity and ensure the resolution resilience of these agreements. The bank must be able to identify and report any direct and indirect links to financial market infrastructures, such as payment systems. In their continuity plans, the bank must describe the requirements for the continued availability of relevant financial market infrastructure services, and the measures for ensuring the availability of these services.
- Data and information systems and information required for valuation: The banks must be able to provide data that will allow the FFSA to develop and maintain resolution plans, conduct the necessary valuation of assets and liabilities during resolution, and apply resolution measures. In addition, the banks are asked to provide a description of their processes for producing, compiling, and delivering data, as well as the related quality assurance controls and continuity arrangements. The banks must also have the capability to produce material for a virtual data room for prospective buyers.
- Communication: The banks are expected to provide a description of the governance arrangements and processes that they will use to ensure timely and consistent communication during resolution. The banks must prepare operational documents for their communication activities in resolution situations, such as press release templates and pre-prepared lists of frequently asked questions.
- Separability and restructuring: The bank must be able to assess how the various parts of its operations could be separated from each other for sale. The bank must assess whether other operators on the market have interest in purchasing the bank or parts of it. The bank must have the capability to prepare a restructuring plan in connection with the use of the bail-in tool.
The FFSA assesses and publishes its assessment of the resolution capabilities of banks based on the above-mentioned dimensions on an annual basis.
Further reading in FFSA's report Resolution capabilities of banks 2024 (pdf)
If the development work for ensuring resolution capability is not at the required level, and the bank has not drawn up a credible development plan to remedy the situation, the FFSA may exercise its powers. In such situations, the FFSA may demand the bank to remove the impediment that could significantly hinder the implementation of resolution measures.