In a special report the European Court of Auditors pointed to critical weaknesses and shortcomings in the build-up and work of the Single Resolution Board thus far. The auditors identified e.g. deficiencies in preparations for the full range of bank resolution arrangements. The report offeres in-depth analysis and valuable insights with a lot of useful recommendations to the authority.
ECA special report No. 23/2017
19 December 2017
Source: European Court of Auditors
Natalie Hagmayer, Anna Ludwikowska, Shane Enright, Helmut Kern, Radek Majer, Helmut Frank, Kevin Cardiff, Matthias Blaas, Zacharias Kolias, Vasileia Kalafati, Gediminas Mačys. The report was produced by Audit Chamber IV, headed by ECA Member Baudilio Tomé Muguruza. The audit was led by ECA Member Kevin Cardiff.
The Single Resolution Board (SRB), which was set up to ensure the resolution of banks in the EU, is still “very much a work in progress”, according to a new report from the European Court of Auditors. Resolution is the restructuring of a failing bank in order to safeguard financial stability and public interests, with minimal costs to taxpayers. The auditors identified shortcomings in the contingency plans for bank resolution prepared by the SRB, which has been required to take on considerable responsibilities in a very short time span.
The auditors identified deficiencies in preparations for the full range of bank resolution arrangements that might be required. Although the SRB has worked long and hard to ensure that at least preliminary versions of their “resolution plans” are in place for most banks, those adopted so far do not meet the standards laid down, say the auditors.
“The set-up of the SRB from scratch was a very significant challenge”, said Kevin Cardiff, the Member of the European Court of Auditors responsible for the report. “Although its weaknesses must be seen in the start-up context, there is still a long way to go”. The auditors make a number of recommendations relating to the rules and guidance for resolution plans, as well as for their preparation. They also address issues of staffing and the SRB’s legislative framework.
- The SRB should first determine when the first rulebook-compliant resolution plan is to be drawn up for each bank, say the auditors. It should prioritise them in terms of the risk of failure. Each plan should address the resolvability of the bank concerned, including the determination of substantive impediments and the feasibility and credibility of the chosen strategies.
- To ensure that the banking sector has enough loss-absorbing capacity, the SRB also needs to finalise a system of rules and guidance for resolution planning, including a policy for determining minimum requirements for banks’ own funds and eligible liabilities. Guidance notes and a resolution planning manual need to be developed or updated, as appropriate.
- Staffing delays have negatively impacted all areas of the SRB’s activities, say the auditors, despite the commitment and motivation of its staff. The SRB needs to accelerate its recruitment efforts and resource its HR function appropriately, particularly for more specialised and senior posts. If staffing targets cannot be met, or if interim measures are required, the SRB should consider alternative solutions.
- The distribution of operational tasks between national authorities and the SRB, including the division of responsibilities, is still unclear, and internal resolution teams are understaffed. The SRB urgently needs to address these issues, say the auditors.
See also related analysis and opinion:
Blog post, January 15, 2018 on Bruegel website, by Nicolas Véron, Bruegel
Bad News and Good News for the Single Resolution Board
The ECA report was discouraging at one level, citing many shortcomings of the new body. But there are also signs that the situation is improving, and that the SRB is on its way towards fulfilling its assigned mission. For both reasons, this report, which is rich in previously undisclosed information and insight, deserves extensive analysis and debate. more…