SRB annual conference 2024: entering a new phase of banks testing and operationalisation of resolution plans

The Single Resolution Board (SRB) convened its annual conference on 13 February 2024 with a theme highlighting the focus for the year: ‘The road ahead: risk, readiness and resilience’.

While significant strides have been made with the EU banking resolution framework and tools, the SRB’s Chair Dominique Laboureix recalled this is not the end of road. The launch of the SRM Vision 2028 during the conference sets the new strategic direction for the SRB, aimed at addressing the new and emerging risks facing the EU banking sector.

After nearly a decade^[1]focussing on resolution planning and preparation for building resilience, the SRB will now focus on making the banks’ resolution plans operational. This transition entails more vigorous testing and inspections at banks, signalling a forthcoming wave of SRB activities to which banks must prepare.

The SRB also continues to enhance its collaboration with the ECB, which was showcased with opening remarks at the conference from both the SRB and the European Central Bank (ECB). This heightened cooperation may manifest in expanded joint initiatives between the two institutions.

In this article, we discuss what the SRB is planning for this next phase and highlight some of the remaining challenges and implications for banks.  

“We will review our resolution planning activities to focus more on the operational aspects and on testing banks capabilities to handle a crisis. We will also perform on-site inspections.”

Dominique Laboureix, Chair of the SRB

A decade of resolute progress

Over the past decade, the SRB has established the Single Rulebook and mandated banks to adhere to a comprehensive set of requirements aimed at strengthening resilience and resolvability. Banks under the SRB remit now have in place detailed resolution plans, adapted to their local particularities but also considering cross-border issues. Additionally, banks have also provided the SRB with the necessary data to facilitate resolution processes.

Moreover, the MREL[2] is now fully implemented. The expected contribution of banks to the Single Resolution Fund (SRF) is now fulfilled, with the initial 55 billion € being completed by an additional 22 billion € from the pandemic.

Recent banking struggles in the USA, and the case of Credit Suisse in Switzerland, allowed to test the efficiency of the SRM and the resilience of European Banks. Despite these challenges, the EU has remained robust, showing no evident signs of contagion from the crisis.

SRM evolution in the face of emerging risks

While significant progress has been made, the SRB underscored that the global landscape has also evolved since the start of the Single Resolution Mechanism (SRM). New and emerging risks are now challenging the resilience of the EU banking sector and necessitate consideration.

While the primary concern during the 2008 crisis was credit risk, in 2024, a wider range of risks must be considered. Geopolitical, climate, cyber, market, and reputational risks, can all jeopardise the stability of a bank, and have the potential to fuel one another or strike simultaneously. For example, social media platforms can cause an uncontrolled and faster than ever before dissemination of information – whether it be accurate or not. Digital risks also became a major concern in the last decade[3], with the increasingly online financial services being more vulnerable to cyber-attacks. Foreign actors could exploit these weaknesses to disrupt entire financial systems.

Changes in consumption habits of financial services have also given rise to Non-Banking Financial Institutions (NBFIs), which are not subject to the same supervisory rigour as banks, but for which large failures could lead to contagion within the EU banking sector.

Consequently, the SRM must therefore proactively anticipate these intertwined and evolving threats. This all requires greater synergy in resolution planning, enhanced expertise in the resolution authorities, and more robust communication.

On the supervisory and regulatory side, we also need to adapt to a changing environment. Closing gaps in the resolution framework and completing the CMDI review is an integral part of this.     

Claudia Buch, Chair of the Supervisory Board of the ECB 

The SRM vision 2028: evolution, not revolution

In response to these new and emerging risks, an in-depth strategic review of the SRM was performed in the past year. During the conference, the SRB’s Chair Dominique Laboureix unveiled the new SRM Vision 2028[4]. This new strategy considers the changing risk landscape and places resolvability and the operationalisation of resolution plans at the core of the SRM’s work. These efforts will also inform the forthcoming work programme of the SRB.

The SRM Vision 2028 will focus on three main pillars.

1. Improve crisis preparedness
2. Streamlined and transparent governance
3. Harness talents with internal and external capacities

Firstly, the SRB with further improve crisis preparedness by enhancing international relations, focussing on operational aspects, and having staff spend more time visiting banks’ premises. The SRB announced it will conduct deep-dives, on-site inspections, and regular testing of existing resolution plans to ensure their operational effectiveness and the readiness of banks to facilitate resolvability.

Secondly, the SRB will adopt a more streamlined and transparent governance in response to feedback from the banking institutions. It already published on the list of upcoming consultations[5] on 7 February, covering topics such as MREL, bail-in, contribution to SRF and resolvability testing. Additionally, the document outlines the list of deliverables expected from banks in 2024.

Thirdly, the SRB will harness talents with internal and external capacities, to better equip the SRM to address the resolution processes faced by banks.

A key takeaway from the conference is the strengthening cooperation and collaboration between the SRB and the Single Supervisory Mechanism (SSM) to further develop resilience to new and emerging risks faced by EU banks. It is expected that collaboration will continue in areas such as banks’ testing, deep-dives, and inspections.

Challenges ahead despite milestones

At the core of the new SRB strategy lies the imperative to ensure that banks are adequately prepared for their own crisis. The SRB has identified a broad range of areas of expectation from banks published[6] in 2020, and subsequently communicated through ongoing dialogues. Nevertheless, here are still areas where certain banks need to make further progress.

This year, banks will be tasked with continuing to reinforce the operational side of their resolution plans, alongside ensuring the viability and resilience of their business models against potential shocks. Further, banks will still be expected to work on their liquidity funding plans, as these are crucial forb bolstering market confidence in the event of resolution and facilitating swift resumption of business operations. Smaller institutions will also need to further diversify their options.

Data also remains central to the SRB expectations from banks, with any remaining weaknesses expected to be addressed rapidly. The ability to provide complete and accurate data to the SRB (and the ECB) within a very tight timeframe is essential in the event of a bank resolution. This entails granting access to the relevant data management systems and tools of the bank. However, many banks still encounter challenges in demonstrating their capacity to fully comply with such data requirements, especially in more complex areas such as cross-border operations.

EDIS must progress and the urgency of CMDI finalisation

In a broader context, the SRB reiterated that a sound resolution framework must be supported by a fully implemented global Banking Union, which was firstly pitched in 2012[7]. However, this is still incomplete, mostly due to the still missing European Deposit Insurance Scheme (EDIS)[8].

Another major step to reinforce the European financial stability is the completion of the Crisis Management and Deposit Insurance (CMDI). Progress is underway, and its final framework is anticipated to be released by the end of the first semester of 2024. This development should empower authorities to facilitate an orderly market exit for failing banks of any size and business model, including smaller players.

Anticipating trends and challenges beyond 2024

While the next steps in the SRM represent an evolution and not a revolution, banks must be prepared for the anticipated increase in activities conducted by the SRB at their premises in the near future.

Although the SRB has not yet precisely communicated its planning calendar, nor what will be the operational organisation for the inspections, it has clearly stated that staff will spend more time at banks for testing, on-site inspections, and deep dives.

Further, the level of collaboration and synergies between the ECB and SRB’s activities is not yet fully clear. At a minimum, it is expected that the SRB will be able to leverage on existing ECB assessments, such as the operational resilience, to make its own upcoming tests more efficient. The SRB has also mentioned collaborating with the ongoing ECB cyber stress tests, for example.

It is also anticipated that, as the SRB strengthens its capacity for quality control, it will begin to organise more complex tests in the future, incorporating scenarios such as transfer strategies alongside others.

Given that such in-person inspections can be time consuming and lengthy, banks will need to carefully assess how these ‘new’ SRB activities will impact them in order to adapt their resource allocation accordingly.

[1] SRB started to operate on January 2015 and was fully operational in January 2016

[2] Minimum requirement for own funds and eligible liabilities: prevent resolution using public support. Some banks will have until 2025 to finish it.

[3] Since 2016, and the cyber-attack of the central bank of Bangladesh that leaded to a $101 million loss

[4] SRM Vision 2028 strategy_FINAL.pdf (europa.eu)

[5] Single Resolution Board publishes the list of consultations and requests| Single Resolution Board

[6] Expectations for banks | Single Resolution Board (europa.eu)

[7] 2012-06-29_euro_area_summit_statement_en.pdf (europa.eu)

[8] Provides a uniform insurance cover and dissuade bank run