Consultation on bank liquidity and funding in resolution guidance
The Single Resolution Board has launched a public consultation on its updated operational guidance for banks on liquidity and funding in resolution. This guidance supersedes previous documents, clarifying and simplifying resolvability expectations.
Sharpening Liquidity Expectations for Resolution
The SRB's updated operational guidance specifies resolvability expectations for liquidity and funding arrangements, aiming to help banks demonstrate their capabilities.
It supersedes three prior guidance documents, adjusting wording for clarity in areas like the identification of Key Liquidity Entities (KLEs) and Key Liquidity Drivers (KLDs), and removing redundant expectations.
The guidance applies to banks under the SRB's direct remit for which resolution is the preferred strategy, including hosted banks.
It is structured around three core principles from the SRB's Expectations for Banks (EfB): estimation of liquidity and funding needs, measurement and reporting of the liquidity situation, and identification and mobilisation of collateral in resolution.
The document defines key resolution phases, including the run-up to resolution, the resolution day or weekend, and the stabilisation phase, ensuring a common understanding for compliance.
Defining Key Liquidity Elements
The guidance emphasizes the identification of Key Liquidity Entities (KLEs) and Key Liquidity Drivers (KLDs) as central to estimating liquidity and funding needs across resolution phases.
KLEs include Relevant Legal Entities (RLEs), Material Legal Entities (MLEs), significant branches, and Special Purpose Vehicles (SPVs) for securitisation or covered bond issuances.
It also covers subsidiaries providing access to strategically important markets, such as the USD market, and extends to insurance, re-insurance, leasing, and factoring companies.
This comprehensive identification process enables banks to develop tailored estimation methodologies that accurately reflect their business model and corporate structure, facilitating effective assessment of liquidity dynamics by resolution authorities during distress.
Refining the Resolution Toolkit
This updated guidance provides much-needed clarity, streamlining previous documents and offering precise definitions for critical elements like KLEs and KLDs.
While not introducing entirely new concepts, its value lies in standardizing expectations and reducing ambiguity for banks navigating complex resolution planning.
The SRB's focus on operational capabilities underscores a pragmatic approach to ensuring financial stability, making resolution more predictable and manageable.