Banks test recovery plans: EBA highlights good practices
The European Banking Authority (EBA) has published a comparative analysis on how institutions test their recovery plans through 'dry runs'. The report highlights current practices and observed good practices across the European banking sector.
Effectiveness varies with maturity
The EBA's analysis confirms that recovery plan dry runs are highly effective for enhancing the operationalisation of recovery plans and strengthening institutions' overall crisis preparedness.
Most institutions explicitly recognise their value, using objectives, outcomes, and lessons learned from dry runs as tangible evidence of their usefulness.
However, approaches and levels of maturity vary significantly across institutions.
Where dry runs are conducted primarily to meet supervisory expectations with limited senior management engagement or unclear objectives, they tend to be less meaningful and resemble compliance exercises, yielding limited insights.
By contrast, institutions with more mature approaches treat dry runs as genuine managerial tools, reporting results in a structured manner and using them to embed recovery planning within the broader risk management framework.
These enhance internal preparedness by fostering credibility, feasibility, and organisational understanding of recovery planning arrangements.
Lessons from recent crises
The report underscores the relevance of practical testing, noting that institutions and competent authorities have accumulated nearly a decade of experience in drafting and assessing recovery plans.
This provides a solid foundation to progress from design to effective testing.
The regulatory framework for recovery planning has also been consolidated with updated EBA Guidelines.
Furthermore, the 2023 failures of certain U.S. regional banks and the case of Credit Suisse demonstrated the critical importance of institutions being crisis-ready, with recovery options that are credible, feasible, and capable of timely implementation.
Recent geopolitical developments further highlight the need for preparedness against unexpected shocks and heightened uncertainty.
The EBA's analysis covered 16 European cross-border banking groups from 10 different EU countries, focusing on governance, scope, preparation, execution, and outcomes of dry runs.
Beyond compliance, towards resilience
This EBA report serves as a crucial benchmark, moving beyond mere regulatory compliance to emphasize genuine operational resilience.
While not prescriptive, it clearly delineates the chasm between perfunctory exercises and those that truly enhance crisis preparedness.
The findings highlight that effective dry runs are not just about ticking boxes, but about fostering a culture of continuous improvement and strategic integration into risk management frameworks.