4.3.1 Preparation

In the preparation-stage, the bank makes a recovery plan, while the resolution authority makes a resolution plan and assesses the resolvability of the bank.

Pursuant to Art. 5(1) BRRD, banks1 have to draw up a recovery plan.2 A recovery plan has to include measures to be taken by the bank to restore its financial position following a significant deterioration of its financial situation.3 Recovery plans have to be updated regularly.4 Pursuant to Art. 6 BRRD, recovery plans have to be submitted to the competent authority5 for review. The competent authorities thus assess the appropriateness of the recovery plans.6

Where the recovery plan is drawn up by the bank, the resolution plan is drawn up by the resolution authority. This follows from Art. 10 BRRD. Pursuant to Art. 8 SRM-Regulation, the SRB shall draw up and adopt resolution plans for the significant banks. The national resolution authorities shall draw up resolution plans for the other banks.7

What is a resolution plan? The resolution plan shall provide for the resolution actions which the resolution authority may take where the institution meets the conditions for resolution. When drawing up the resolution plan, the resolution authority shall identify any material impediments to resolvability and, where necessary and proportionate, outline relevant actions for how those impediments could be addressed.8

The resolution plan shall provide for the resolution actions which the SRB may take where a bank meets the conditions for resolution.9 In that regard, Art. 23 SRM-Regulation provides that when adopting a resolution scheme, the SRB, the Council and the Commission shall take into account and follow the resolution plan as referred to in Article 8 unless the SRB assesses, taking into account the circumstances of the case, that the resolution objectives will be achieved more effectively by taking actions which are not provided for in the resolution plan.

Pursuant to Art. 15 BRRD and Art. 10 SRM-Regulation, the resolution authority will assess the resolvability of the bank.10 Section C of the Annex to the BRRD gives a list of matters that the resolution authority is to consider when assessing the resolvability of the bank. When there are impediments to the resolvability of a bank, the resolution authority can require the bank to take measures that reduce or remove the impediments in question.11 For instance, it can require the bank to divest specific assets or require changes to legal or operational structures of the bank.12 Thus, resolution authorities have far-reaching powers, not only in the resolution-stage, but also in the preparation-stage.

As has been remarked in the literature, the drawing up of “living wills” – a term sometimes used to refer to recovery and resolution plans – could act as a catalyst for thinking and taking action.13 The structure of a bank or banking group can be very complex. The different legal entities within a banking group are often interrelated, because key functions (such as risk management, IT, treasury and cash management) are often centralised; resulting in a “mismatch between the legal and operational structure”.14 This might constitute an impediment to the resolvability of the bank.15 Since the measures enshrined in the resolution plan can only be implemented if the bank is organised and structured in line with the resolution plan, the resolution plan dictates the current structure of the bank. Thus, recovery and resolution planning can contribute to reducing the complexity of the bank’s legal and operational structure.16