After the necessary support measures to banks and financial institutions and the bankruptcies of recent years, work continues to further strengthen supervision. Apart from structurally higher capital buffers and intensification of the supervision, the DNB, in line with international developments, also calls upon banks to draw up so-called ‘living wills’.
|Recovery plan and resolution plan|
These ‘living wills’ consist of a recovery plan and a resolution plan and result from the European Banking Authority ‘s guidelines (EBA). On the basis of these guidelines, supervisors are asked to make the necessary preparations for crisis situations at institutions under supervision.
The recovery plan concerns a scenario from and for the institution in the event of (possible) occurrence of heavy financial problems. The recovery plan distinguishes measures to monitor, control and/or mitigate (threatening) financial problems.
The resolution plan is a scenario of the DNB, taking effect if the institution is no longer capable of averting these financial problems on its own. This resolution plan intends to adequately wind up the failing institution, to minimise the financial consequences, and to guarantee the stability of the financial system.
In 2012, the Dutch system banks drafted and submitted recovery plans to the DNB. For these banks the DNB will draw up resolution plans in close consultation with the institution in question as well as with the Minister of Finance in 2013.
At the end of 2012, medium-sized banks were asked to draw up recovery plans. The DNB has issued a framework to work as a guideline for the organisation of the still to be drafted recovery plans.
|Framework of recovery plan|
According to this framework, a recovery plan must consist of the following parts, among others:
1. Near default scenarios for the institution
Scenarios have to be worked out according to the circumstances under which the institution’s existence is endangered. The scenarios need to cover circumstances that are specific to the institution, as well as macro-economic circumstances and possible risks. The slow and/or rapid occurrence of risks needs to be taken into account here. 4 scenarios are prescribed in total. Examples of scenarios are a rising debt crisis and the withdrawal of countries from the Euro zone, bankruptcies of bigger counterparties and/or associated companies, and an increase of withdrawals of funding/savings.
In view of these scenarios, the material risks and indicators/trigger points are identified, which can endanger the liquidity, solvability and/or future profitability of the institution. The indicators can relate to solvability, funding, credit risks, etc.
2. Organisation management information system for monitoring the identified risks
The information system needs to be adapted to monitor the identified risks and indicators (dashboard layout) . The process of the creation of data and information and ensuring the reliability of these should be part of this organisation.
3. Establishment of the organisation of crisis management
This concerns the explanation of the governance and crisis organisation that needs to initiate the described recovery measures, in the event that one of the described stress situations and/or risks should arise. The existing committees and structures must be in keeping with this crisis management organisation. The procedures, powers and responsibilities of the crisis organisation should be clearly defined.
4. Possible recovery measures
In this part of the recovery plan, the possible recovery measures are specifically described. These measures focus primarily on the solvency, liquidity, communication and continuity of the operation. The effect of the measure and the chance of success should also be taken into consideration. Possible measures concern attracting capital, selling and cutting back investments, a more active communication to the stakeholders, scaling-up of the capacity of the operation and ICT.
The DNB has made the following plan for the drafting of recovery plans (source: Thema’s DNB Toezicht 2013):
|Q1 2013||Drawing up plan of approach and project structure|
|Q2 2013||Set up of the recovery plan and alignment with DNB|
|Q3 2013||Submission of definitive version recovery plan|
|Q4 2013||Evaluation by DNB of the embedding of the recovery plans|
Charco & Dique has experience in organising and drawing up recovery plans. For more information you can contact Ronald Buwalda on phone number 020-4165403 or e-mail address firstname.lastname@example.org