Effective implementation of resolution tools and strategies by banks is one of the priorities identified in the European Banking Authority’s (EBA) European Resolution Examination Programme (EREP) Report, which has just been published.
The EBA aims to foster greater convergence in resolution practices across the EU. By setting clear priorities and monitoring progress, the authority seeks to strengthen the banking system’s resilience and protect financial stability.
Key takeaways:
- Focus on operationalization: The report emphasizes the need for banks and authorities to implement their resolution tools and strategies effectively. This includes improving liquidity management in resolution scenarios and enhancing management information systems for valuation purposes.
- MREL progress: While most banks have met their Minimum Requirements for Own Funds and Eligible Liabilities (MREL), the EBA will continue to monitor the qualitative aspects of MREL as part of operationalizing the bail-in tool.
- Building on 2024 priorities: The 2025 priorities largely align with the areas of focus from 2024, acknowledging the complexity of these issues and the need for continued efforts.
2025 priorities
The 2025 EREP priorities mainly confirm and complement the areas of focus set for 2024, given their relevance and the fact that work takes time on those complex topics.
New elements introduced for 2025 reflect policy and market developments, progress and expertise gained by resolution authorities and, overall, embed a testing dimension which is considered central for resolution readiness.
Specific priorities for 2025:
- Operationalization of resolution tools: Ensuring that resolution plans are executable and effective.
- Liquidity strategies in resolution: Developing robust plans for managing liquidity during a resolution process.
- Management information systems for valuation: Improving data quality and systems for accurate asset valuation in a resolution context.
Compared to 2024, building up own funds and eligible liabilities is not a separate priority any more, given that most banks have met their minimum requirement for own funds and eligible liabilities (MREL). However, to increase the effectiveness of the bail-in tool, MREL qualitative aspects are to be further monitored as part of the operationalisation of resolution tools, and quantitative aspects will be followed and disclosed by the EBA in its MREL Dashboard.
Progress achieved in 2023
In 2023, convergence increased within the EU with regards to resolution planning practices and objectives. The EBA had set four key priorities to follow for resolution authorities: (1) addressing minimum requirement for own funds and eligible liabilities (MREL) shortfalls, (2) management information systems for valuation, (3) liquidity needs in resolution and (4) operationalization of the bail-in tool.
The main findings on monitoring their implementation during 2023 include:
- On MREL, only four banks did not meet their target as of January 1, 2024. Resolution authorities have used their powers to impose sanctions and extended deadlines for 22 institutions. They have also increased their monitoring of MREL eligibility and quality, especially for contracts governed by third-country law.
- On the operationalization of the bail-in tool, most resolution authorities have now published their bail-in mechanics and consider that challenges concerning the identification of holders of instruments, suspension for trading or requirements of issuing prospectus for the new instruments persist and are particularly prominent in relation to third country stakeholders.
- While some progress has been observed in the area of liquidity in resolution, resolution authorities plan to further increase the intensity of their testing and to challenge the severity of banks’ scenarios.
- Finally, resolution authorities have performed more testing of management information systems for valuation as some banks showed significant gaps in data quality, automation, granularity and timeliness of report delivery. Further progress remains needed. Resolution authorities have put in place procedures for quickly appointing a valuer.
The EBA supports the work of resolution authorities and is preparing a Handbook on the independence of valuers currently under public consultation.
