4/19/2017 l Resolution Regimes in Europe: Implementation of effective resolution regimes in the region. Funding in Resolution Stefano Cappiello

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1 4/19/2017 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region Funding in Resoution Stefano Cappieo

2 The probem of funding in resoution The EU resoution framework provides for powers and toos to restore the sovabiity of faiing institutions. Even if the bank is we recapitaized after the resoution week-end, it is expected that it wi sti experience iquidity stress due to: > iquidity outfows: depositors may withdraw their money and creditors may terminate as soon as possibe their operations with the bank; > difficuties to access market funding: private counterparties wi ikey be reuctant to dea with the bank in the immediate aftermath of a resoution, at east on an unsecured basis. The main remaining avaiabe sources of iquidity wi be secured funding, either with private counterparties, or more ikey with centra banks/pubic sources. 2 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region - Funding in resoution

3 Key factors for faciitating funding in resoution (1/4) Gathering information > For both resoution panning and resoution preparedness, it is key to obtain granuar information on the iquidity position of the institutions (inc. projected cash infows and outfows) and on the eve and characteristics of their unencumbered assets. > On the basis of this information, Resoution Authorities can get an understanding of the iquidity needs that coud arise after the resoution week-end taking into account the preferred resoution strategy and too(s) - and of the options avaiabe to generate additiona iquidity. Panning and preparing for resoution > Resoution Authorities assess at the resoution panning stage whether the financia continuity of the institutions coud be maintained in the context of a potentia resoution without having to rey on extraordinary pubic financia support. > Resoution pans aso incude a communication pan aiming at buiding trust both in the resoution proceedings and in the creditworthiness of the institution after resoution. 3 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region - Funding in resoution

4 Key factors for faciitating funding in resoution (2/4) Asset encumbrance monitoring for resoution > Acknowedging that, after a resoution, the ony remaining avaiabe sources of iquidity wi ikey be secured funding, the avaiabiity of unencumbered assets is key for ensuring the financia continuity of the institutions. > The SRB methodoogy for monitoring the (un)encumbrance of: - Centra-bank eigibe assets: as it is expected that a key source of iquidity in the immediate aftermath of a resoution wi be the centra banks; and - A assets: as a compement in case private secured funding coud be possibe, and to evauate how much of the institution s assets can be freey separated in case the resoution strategy entais the use of the sae of business too, bridge bank too or asset separation too. > This methodoogy impies a twofod anaysis combining: - a common quantitative approach based on standardised ratios, and - a bank-specific perspective to take into consideration the specificities of each institution, incuding the resoution strategy and preferred resoution too, institutions interna AE targets and impact of recovery options and other actions prior to resoution, business mode / funding mode and the quaity of unencumbered assets. 4 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region - Funding in resoution

5 Key factors for faciitating funding in resoution (3/4) Fostering reiance on private funding > FSB Guiding principe on the temporary funding needed to support the ordery resoution of a G-SIB: To reduce the need for temporary iquidity support from the pubic sector and to minimise the risk of mora hazard, private sources of funding shoud be reied upon as a first-choice source of funding, to the degree that such funding is avaiabe and compatibe with the objective of ordery resoution. > To this aim, severa options can be envisaged, incuding: - Investigating the feasibiity of requesting some banks, on a case by case basis and during the resoution panning, to set up securitisation arrangements, - Performing an in-depth anaysis on whether providing super-priority rights to iquidity providers in resoution woud be feasibe and appropriate. 5 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region - Funding in resoution

6 Key factors for faciitating funding in resoution (4/4) The preconditions for the use of the SRF in the Banking Union > Art. 76 of the SRMR defines the context, purposes and imitations for using the SRF: - The Board may use the SRF within the resoution scheme and to the extent necessary to ensure the effective appication of the resoution toos, - For a pre-defined ist of purposes (guarantees on assets, iabiities, make oans, purchase assets etc.), - With respect to the resoution entities (institutions and their subsidiaries, bridge institutions, AMV) or the purchaser in the context of the sae of business too, and - The Fund sha not be used directy to absorb the osses or recapitaize an entity. In the event it indirecty resuts in part of the osses being passed on to the Fund, the principes set in Art. 27 sha appy (first minimum contribution from existing sharehoders and creditors, and then maximum 5% SRF support). > Any use of the SRF woud trigger the need for assessing compiance with the EU State Aid rues. 6 Resoution Regimes in Europe: Impementation of effective resoution regimes in the region - Funding in resoution

7 4/19/2017 THANK YOU