Expectations for Banks

Bank Regulation Expectations: Navigating the Complexities of Compliance Guidelines in Europe

European banking has been undergoing transformative changes, with the aim of fostering stability and trust. One central aspect of this transformation is ensuring that banks, if they were to fail, can be resolved without destabilizing the financial system or requiring taxpayer support. To provide clarity on this front, the Single Resolution Board (SRB) has outlined key dimensions of resolvability, each bearing specific principles. This article delves into these dimensions and what they mean for banking in Europe.

Dimensions of Resolvability According to SRB: Key Principles

1. Operational Continuity:
   • Services Continuity: Guarantees are essential for uninterrupted access to critical operational services during resolution.
   • Operational Resilience: Banks should be able to withstand operational disruptions, including threats like cyber-attacks.
2. Access to Financial Market Infrastructure:
   • Uninterrupted Access: Continued access to vital clearing, payment, and settlement systems is paramount.
   • Contingency Arrangements: Preparedness for potential FMI service disruptions is a must.
3. Information and Data Requirements:
   • Data Availability: Quick access to resolution-pertinent data can be a game-changer.
   • Data Accuracy: Assurance of data’s accuracy is crucial for resolution actions.
4. Separability:
   • Operational Separability: Effective disentanglement of operations is vital.
   • Legal Separability: Understanding legal entity interconnectedness aids in resolution activities.
5. Legal Structure and Instrument:
   • Clarity of Legal Structure: The bank’s structure should aid, not impede, resolution.
   • Resolution Tools: Instruments should facilitate the bank’s resolution strategy.
6. Liability and Capital:
   • Loss Absorption: An apt mix of liabilities ensures losses can be managed.
   • Recapitalization Capacity: Banks should be poised to recapitalize post-resolution.
7. Funding in Resolution:
   • Liquidity Assessment: Analyzing liquidity during resolution is non-negotiable.
   • Funding Strategy: Plans should be in place for post-resolution liquidity access.
8. Communication:
   • Internal Communication: Transparent communication within the institution is crucial.
   • External Communication: Addressing external stakeholders helps avert panic and misinformation.

Relevant Requirements

Given the complex landscape of European banking, understanding and aligning with the regulations is essential. Banks need to ensure compliance, not just for legal conformity but to assure stakeholders of their stability and trustworthiness.

Relevant Regulation

The regulatory landscape in Europe is vast. Some of the pivotal regulations and directives include:

• Capital Requirements Directive (CRD IV)
• Bank Recovery and Resolution Directive (BRRD)
• Single Resolution Mechanism Regulation (SRMR)

Regulatory Expectations

Regulatory bodies expect banks to be proactive in their approach, embracing both the letter and the spirit of the regulations. It’s not just about compliance; it’s about contributing to the collective goal of financial stability in Europe.

Understanding and adhering to the SRB’s dimensions and principles of resolvability can go a long way in ensuring that European banks remain robust, resilient, and ready for the challenges of the future.