On Wednesday 1 November, the European Banking Authority (EBA) published its final recommendation on the identification of entities covered by recovery plans of bank groups, calling on the competent authorities to adopt a proportionate approach.
According to the European authority, evaluations of groups' recovery plans in recent years has shown that these are often drawn up from the point of view of the parent company, irrespective of the level of decentralisation of the group. Consequently, the recovery plans do not always contain appropriate information on the entities of the group. This loophole has an effect on the credibility, but also the effectiveness of the proposed recovery measures, the EBA explains in its recommendation.
To remedy this, the EBA recommends that the coverage of entities by the group recovery plan should be proportionate to the size of the entities. To bring this about, it suggests classification into three categories, with different levels of information: - entities that are relevant for the group, which should be covered extensively in all sections of the plan; - entities that are relevant to the economy or financial system of the member state in question, for which the plan should focus mainly on preserving essential functions, and; - other entities that do not meet the criteria for the other two categories and which should be covered less extensively, mainly in terms of a general description of the entity.
The EBA argues that this classification should be accompanied by an adjustment phase to ensure that recovery planning information currently available at local level is able to transition to the banking group.
These criteria will help institutions avoid a fragmented approach in providing information on recovery plans and gain a better understanding of the relevant supervisory expectations, the authority states in a press release. The recommendation will begin to apply on 1 January 2018. (Original version in French by Marion Fontana)