20 October 2021

CEPS: Impediments to resolvability – what is the status quo?

To efficiently resolve a bank that is failing or likely to fail, and for which resolution is deemed in the public interest, it is important that impediments that hamper its resolvability are removed.

Noting the limited public disclosure of banks and the Single Resolution Board (SRB), this paper assesses improvements in resolvability of a sample of 72 eurozone banks based on some key indicators. The main findings suggest that resolvability has marginally improved since the SRB resumed its full legal mandate in 2016, which is in line with earlier statements of the SRB characterising the process to make banks resolvable as a ‘marathon’.

This paper assesses the current state of identification and removal of impediments to bank resolution
based on publicly available information. Impediments can be understood as obstacles that are
potentially able to hinder the effective resolution of failing banks.

As long as impediments have not been removed or addressed, they are a concern for the preparedness
for potential resolution. A bank might still be resolvable, but impediments might complicate the bank’s
resolution. Today, it is unknown to the general public to what extent this would be the case.
The Single Resolution Board (SRB) has indicated in general terms the status quo on identifying and
addressing the impediments of banks under its remit. The latest information from the SRB suggests
that it will take up to the end of 2023 before the impediments are removed. The SRB expects banks to
take the necessary steps to address the impediments, without imposing the measures available under
the legal framework. The SRB has not published the resolution plans of individual banks, unlike the
practice in the US.

This paper also assesses the disclosure of obstacles to resolution and initiatives undertaken to address
them by 72 banks under the remit of the SRB. The findings suggest that most banks refer to resolution
or equivalent topics in their annual report, but only very few banks indicate elements about
impediments or obstacles to resolvability.

In addition, banks do not regularly disclose information in a comparable manner concerning most
aspects that could qualify as impediments. Based on two indicators, for relevant separability and
restructuring, a majority of the banks have simplified their corporate structure (number of entities
consolidated) since the SRB resumed its full legal mandate in 2016. Nevertheless, there is also a
significant minority of banks for which the structure has become more complex. Although a slight
majority of banks with illiquid assets (i.e. level 3 assets 1) have further decreased them, nevertheless
there are still many banks with illiquid portfolios.

The SRB has already suggested some initiatives to enhance the disclosure of resolution plans. Ideally,
the SRB should publish summaries for banks and the general public, which might enable the various
stakeholders to better prepare for the possible failure of banks

CEPS

© CEPS - Centre for European Policy Studies