EU Single Resolution Board: Harmonized Resolvability Testing Guidelines for Banks

• The Single Resolution Board (SRB) has released guidelines for EU banks on resolvability testing.
• The Operational Guidance on Resolvability Testing for Banks outlines expectations for banks on the goals of resolvability testing and promotes a harmonized approach to implementation.
• The multi-annual testing programme (MATP) will define the testing exercises banks must conduct over a three-year period, creating a feedback loop between resolvability assessment and testing.

The MATP will help achieve this objective by providing a harmonized approach to resolvability testing, which will enable regulators to assess banks' preparedness for resolution more effectively.

The Single Resolution Board (SRB) has released guidelines for EU banks on resolvability testing, aiming to harmonize the approach and ensure compliance with regulatory requirements. The Operational Guidance on Resolvability Testing for Banks outlines expectations for banks on the goals of resolvability testing, including defining testing areas and sub-areas, and setting standards for test design, preparation, and reporting.

The guidelines also introduce a multi-annual testing programme (MATP), which will define the testing exercises banks must conduct over a three-year period. This program is designed to create a feedback loop between resolvability assessment and testing, with outcomes informing testing priorities and results influencing operational effectiveness.

The guidelines are part of the EU's efforts to strengthen banking sector resilience. The SRB's goal is to ensure that banks can be resolved quickly and efficiently in case of distress, minimizing costs for taxpayers and maintaining financial stability.

The MATP will help achieve this objective by providing a harmonized approach to resolvability testing, which will enable regulators to assess banks' preparedness for resolution more effectively.

Lawyers advising European banks should review the Operational Guidance on Resolvability Testing for Banks to ensure compliance with the harmonized approach and multi-annual testing programme. Failure to comply may impact a bank's operational effectiveness and future resolvability assessments, potentially affecting its ability to operate smoothly in times of crisis.

The guidelines also have implications for banks' risk management strategies, as they will need to adapt their approaches to meet the standards. By prioritizing compliance with these guidelines, banks can minimize regulatory risks and maintain a stable financial position.

Lawyers advising European banks should review the new Operational Guidance on Resolvability Testing for Banks to ensure compliance with the harmonised approach and multi-annual testing programme, which may impact their clients' operational effectiveness and future resolvability assessments.

Source: Original reporting via EU banking regulations