Group financial support refers to one entity of a banking group providing support to another entity of the same group on the basis of a financial support agreement, provided the latter entity encounters financial difficulties and meets the conditions the BRRD requires for early intervention measures by the competent authority.

 

The legal framework for financial support within a group is widely different across the EU countries, in particular if the group is in financial difficulties and with regard to support from a subsidiary to a parent company (upstream support). This makes it difficult for cross border groups in financial distress to allocate and manage liquidity optimally, meaning that although the group as a whole has sufficient resources, individual entities may be at risk of failure. Therefore, uncertainties around conditions and resources for supporting the group entity in distress and excessive constraints can ultimately result in a destabilisation of the whole group.

 

The purpose of the proposed RTS and Guidelines is to establish a clear harmonised legal framework to facilitate group support and to enhance legal certainty by overcoming existing legal obstacles. They ensure that competent authorities of the providing entity grant the authorisation to the support on the basis of a number of conditions: the interest of the group as a whole and the risks which would materialise for the providing entity if the support was not provided; the expected success of the support, the terms of the support (and various prudential requirements applying to the providing entity), the possible impact on financial stability and the resolvability of the providing entity.

 

Moreover, the draft RTS and Guidelines require authorities and institutions to consider the possible reasons for the financial distress of the institution concerned, including their business model, the current market situation and potential further adverse developments. Whether the above conditions are fulfilled must be assessed based on a description and a projection of the capital and liquidity situation, as well as the needs of the receiving entity, also on the basis of the information provided by the competent authority of the latter.

 

In the ITS on the form and content of the disclosure of public support agreements the EBA ensures a high standard of transparency with regard to support agreements. So creditors of the group are in the position to make informed investment decisions and assess the consequences of the agreement on individual subsidiaries and the group as a whole.

 

A public hearing will then take place at the EBA premises on 8 December 2014 from 14:00 to 16:30 UK time.

 

Full article on European Banking Authority's website

 

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