How it works

A recovery plan is drawn up and maintained by the institution itself, in contrast to the resolution plan, which is written by the authorities. It sets out, in advance and in peacetime, the range of credible actions management could deploy to stabilise the firm if it came under severe stress — for example raising capital, disposing of assets or business lines, reducing risk, restructuring liabilities or cutting costs. The plan does not assume any extraordinary public financial support and must be capable of being implemented without triggering resolution.

A central feature is a framework of recovery indicators — quantitative and qualitative triggers covering capital, liquidity, profitability and market conditions — that signal when the firm should consider activating recovery options. The plan is stress-tested against a set of severe but plausible scenarios (idiosyncratic, system-wide and combined) to check that the options would work under real strain. Supervisors review the plan, assess its credibility and can require changes; recovery planning also feeds the authorities' understanding of the firm when they prepare its resolution plan and assess resolvability.

Recovery planning belongs to the pre-crisis phase and connects to early intervention: a deteriorating firm may first work through its recovery options, and if these prove insufficient supervisors may apply early intervention measures before any determination that it is failing or likely to fail.

Recovery planning is governed by the BRRD, principally Arts. 5–9, which require institutions to draw up, update and submit recovery plans and set out supervisory assessment; group recovery plans are addressed in Arts. 7–9. The obligation is reinforced by the general governance duty on institutions to have recovery arrangements under CRD Art. 74. The regime is complemented by regulatory technical standards specifying the content of plans and the range of scenarios and indicators.

Relevance for banks and investors

For banks, the recovery plan is a live management tool as well as a regulatory deliverable. It defines the menu of actions available under stress, the governance for escalating decisions, and the indicators that would prompt the board to act, so it shapes how quickly and credibly a firm could respond to a shock.

For investors and analysts, recovery plans are largely confidential, but the framework matters because it sits ahead of resolution in the crisis continuum. A firm with credible, well-tested recovery options is better placed to self-correct before reaching the point where write-down, conversion or bail-in becomes relevant. Recovery indicators also overlap with the capital and liquidity metrics investors already monitor, since breaches of buffer or MREL thresholds are among the signals that a firm may be moving from business-as-usual towards intervention.