Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.7.1.2:4.7.1.2 Business reorganisation plan

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.7.1.2

4.7.1.2 Business reorganisation plan

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The BRRD and SRMR do not provide for the obligation to draft a restructuring plan, once the bank is in resolution. Only, in case the bail-in tool is applied for recapitalisation purposes to a bank in resolution, a business reorganisation plan has to be drafted by (the management body of) this bank.1 The business reorganisation plan can take into account the information contained in the recovery plan and the resolution plan, to the extent that this information is still relevant to the restoration of the long-term viability of the bank and taking into account the application of the bail-in tool.2

The business reorganisation plan has to include:

1.

A detailed diagnosis of the factors and problems that caused the bank to fail or to be likely to fail and the circumstances that led to its difficulties;

2.

A short description of crisis prevention and crisis management measures where these have been applied by the competent authority, the resolution authority or the bank before the submission of the business reorganisation plan;3

3.

A description of the measures aiming to restore the long-term viability of the bank or its parent company or parts of its business that are adopted;

4.

A timetable for implementation of those measures;4

5.

The projected financial performance of the bank or its parent company during the reorganization period;5

6.

Sufficient information to allow the resolution authority and the competent authority to assess the feasibility of the proposed measures (viability assessment).6

Ad 3: Measures to restore the long-term viability of the bank

The business reorganisation plan has to set out the measures aiming to restore the long-term viability of the bank or its parent company or parts of its business within a reasonable timescale. These measures may, for example, include the reorganisation of the activities of the bank, changes to the operational systems and infrastructure, the withdrawal from loss-making activities, restructuring of existing activities and the sale of assets or business lines.7 The long-term viability of a bank is deemed restored following resolution if, at the latest by the end of the reorganisation period, the bank or banking group is capable of fulfilling its internal capital adequacy assessment process, and all the relevant prudential and other regulatory requirements on a forward-looking basis, and it has a viable business model that is also sustainable in the long-term.8 Restoration of the long-term viability, even under the worst-case scenario, may not involve further application of resolution tools beyond the scope of the resolution scheme under implementation when the business reorganisation plan was drawn up.9

Monitoring arrangements

Although monitoring arrangements do not form part of the business reorganisation plan, the management body or the person or persons appointed by the resolution authority has to implement the business reorganisation plan as agreed by the resolution authority and competent authority, and has to submit a report to the resolution authority at least every six months on progress in the implementation of the plan.10

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