11/22/2017 l 6 th Industry Dialogue: Critical functions and bank reportings. Mauro GRANDE, Board Member of the SRB

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1 11/22/ th Industry Diaogue: Critica functions and bank reportings Mauro GRANDE, Board Member of the SRB

2 AGENDA 1. Introduction 2. Critica Functions Reports by Banks 3. Benchmarking Exercise by SRB 4. Concusion and next steps 2

3 INTRODUCTION Critica functions: a key eement in resoution pans Critica functions come into pay in neary a chapters of resoution pans 3

4 INTRODUCTION Critica functions: a key eement in resoution pans Critica functions have consequences for the Determination of (avaiabe and necessary) oss-absorbing capacity and (interna) MREL Separabiity anaysis, and (efforts supporting) financia and operationa continuity and, finay, Determination of the preferred resoution strategy, the resovabiity assessment and the identification of impediments to resovabiity 4

5 CRITICAL FUNCTIONS REPORTS An essentia input In 2016 critica functions assessments used different approaches and terminoogies in recovery and resoution pans To promote consistency, the SRB deveoped a new tempate for critica functions (CFT) supporting the identification of critica functions, in cooperation with the ECB and the EBA The SRB and ECB are working together to aign critica functions in recovery and resoution pans Standardised format and content > New methodoogy and tempate used for the first time in 2017 > A banks foow pre-defined sef-assessment steps in ine with Deegated Reguation Harmonised methodoogy > Quantitative information informs quaitative assessment > No fixed threshods, but we-informed expert judgement Improved quaity of assessments by banks and IRTs > Enabes comparisons across banks and countries and benchmarking of resuts > Ongoing process: working together to achieve further improvement 5

6 CRITICAL FUNCTIONS REPORTS To a systematic approach Banks sef-assessments are essentia materia for the assessment by IRTs For each of the five economic functions, banks sef-assess how critica they are (Steps 1-4) Bank sef-assessment IRT assessment STEP 1: Quantitative data STEP 2: Quaitative indicators STEP 3: Assessment of impact & substitutabiity STEP 4: Critica? STEP 5: IRT Assessment Harmonized indicators Nationa market share No. of cients Vaue on accounts Etc. Nature and reach Reevance Abiity for substitution Etc. Impact Substitutabiity Anaysis and benchmarking Feedback to bank Decision in resoution pan 6 11/22/2017

7 banks size SRB BENCHMARKING EXERCISE Benchmarking reported CFT of 71 banking groups > Ony subsidiaries ( entities ) ocated in the Banking Union > Comparison of banks sef-assessments ony, not IRTs concusions Sampe consists of banks of different sizes: Type of banking groups incuded in sampe # banking groups # entities Gobay systemicay important institutions 8 96 Other systemicay important institutions Significant Institutions (excuding O-SIIs & G- SIIs) Less Significant Institutions 7 24 Tota

8 % out of tota CFs SRB BENCHMARKING EXERCISE Bank assessments tend to earmark ending activities as critica, whie O-SIIs tend to decare more critica functions than others Most identified critica functions (50%) within the ending category Lending often reported as critica by O-SIIs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 20% 57% 21% 1% 100% 23% 50% 22% G-SII O-SII Other SIs LSIs Tota # CF Deposits Lending PCCSC Capita Markets 2% 2% Whoesae funding 8

9 Average no. of CF SRB BENCHMARKING EXERCISE Bank assessments show that the number of critica functions varies depending on countries The average number of critica functions per country varies ony partiay driven by number of banks (reporting entities), country or bank sizes A B C D E F G H I J K L M N O P Country 9

10 Market share SRB BENCHMARKING EXERCISE Bank assessments show some interna inconsistencies Exampe ending to househods : some banks with market shares above 10% did not consider the function critica, in contrast to others with smaer market shares This hods for a functions for which the SRB has identified outiers. Lending to househods (country X) 20% 15% 10% 5% 0% NOT CRITICAL CRITICAL 10

11 CONCLUSION AND NEXT STEPS Overa, the sef-assessment by banks of critica functions has improved in comparison with the previous resoution panning cyce Some inconsistencies in the way banks assess critica functions sti emerge from the benchmarking anaysis > The approach eaves room for quaitative/ expert judgment by banks The IRTs, based on interna guidance, assessed and in certain cases chaenged the banks sef-assessment > Leading to changes of banks concusions The SRB is drawing essons from the first appication of the approach, aso in terms of need for: > Enhancing benchmarking and peer anayses > Updating the guidance to banks and IRTs The outcome of the critica functions assessment wi feed into the further deveopment of resoution pans 11

12 11/22/2017 THANK YOU For more information, pease contact: