7.2.1.3 The introduction of ex ante restructuring

Although the resolution framework may not provide much guidance on the restructuring process of a bank in resolution or in case of precautionary recapitalisation or precautionary guarantees, it does introduce a clear framework for restructuring prior to resolution (hereinafter referred to as ex ante restructuring).1 Resolution authorities can already force a bank to restructure prior to any financial difficulties arising which may lead to the resolution of the bank. This takes place on the basis of the recovery and restructuring plan.2

All banks need to prepare a recovery plan which includes triggers for measures to be taken by the bank for the restoration of its financial position following a significant deterioration (recovery measures).3 The recovery plan is assessed by the competent authority. In addition, the resolution authority may examine the plan with a view to identifying any actions in the plan which may adversely impact the resolvability of the bank, and may make recommendations to the competent authority with regard to those matters.4 Where the competent authority assesses that there are material deficiencies in the recovery plan, or material impediments to its implementation, it has to require the bank to submit a revised plan. Where the competent authority considers that the deficiencies and impediments have not been adequately addressed by the revised plan, it may direct the bank to make specific changes to the plan. If the bank fails to do so, the competent authority may as an ultimum remedium direct the bank to take any measures it considers necessary and proportionate.5 These measures may include directing the bank to reduce its risk profile, including liquidity risk, enable timely recapitalisation measures, review the bank’s strategy and structure, make changes to the funding strategy so as to improve the resilience of the core business lines and critical functions, or make changes to the governance structure of the institution.6 The author considers these to be ex ante restructuring measures.

In addition to the recovery plan prepared by the bank itself, the relevant resolution authority prepares a resolution plan for each bank on the basis of the information provided by the bank.7 The resolution plan provides for the resolution actions which the resolution authority may take where the bank meets the conditions for resolution.8 For the purposes of drawing up (and updating) the resolution plan, the relevant resolution authority has to make a resolvability assessment.9 Where the resolution authority determines in this assessment that there are substantive impediments to the resolvability of a bank, it will request the bank to propose possible measures. Where the resolution authority assesses that these measures do not effectively reduce or remove the impediments, it has to require the bank to take alternative measures.10 The author also considers these alternative measures to be ex ante restructuring measures. Alternative measures can, for example, include the requirement to revise any intragroup financing agreements, to limit maximum individual and aggregate exposures, to divest specific assets, to limit or cease specific existing or proposed activities, to change legal or operational structures of the bank, to set up a parent financial holding company in a Member State, to issue eligible liabilities, or to renegotiate any eligible liability, additional Tier 1 instrument or Tier 2 instrument it has issued.11