The Single Resolution Board (SRB), the European authority responsible for resolving a failing banking group in the euro area, issued guidelines on Tuesday 19 February setting out its expectations for the valuation of banking institutions.
The objective of the European authority is to reduce the uncertainty inherent in the valuation exercise of a financial institution, to accelerate a possible resolution procedure and to increase the comparability of data.
In accordance with Directive (2014/59) establishing a framework for the reorganisation and resolution of credit institutions, the resolution authorities shall ensure that a "fair, prudent and realistic" valuation of the assets and liabilities of a defaulting bank is carried out by a person independent of any public authority.
The purpose of the valuation is threefold: - to document the decision of the Single Resolution Board that the conditions for a bank resolution are met ('valuation 1'); - when the conditions for a bank resolution are met, to document the decision of the SRB regarding the application of resolution instruments ('valuation 2'); - to determine whether a bank's shareholders and creditors would have received better treatment if a bank involved in a resolution process had been subject to normal insolvency proceedings.
See the guidelines on page: http://bit.ly/2BIYMmr. (Original version in French by Mathieu Bion)