On February 25-26, 2016, Alvarez & Marsal (A&M) was the lead sponsor at the Bank Structuring and Resolvability Conference in London.
The event brought together industry experts from Europe to examine the evolution of bank structures redesigned to meet regulatory requirements, as well as best-practice approaches for deploying resolution plans. The conversation was driven in response to the recent trend of financial regulation requiring that institutions amend internal frameworks to minimize bailout risk.
The two-day event included high-level panel discussions which identified key issues, themes and discussion points.
Below are A&M’s summarised main insights from the event and what they mean for the industry.
- Additional clarity is required around:
- Structuring of bail-inable capital and funding (MREL and TLAC) and internal TLAC rules
- Suitability and appropriateness of the holders of TLAC/MREL who would become the new shareholders of the post-resolution bank entity
- Visibility from resolution colleges to provide clear direction and view on resolution plans and impediments to resolution
- Planning and operationalizing resolution plans and simulations to understand practical consequences
- Implementing organizational changes and ongoing additional funding costs and how these costs would be absorbed by the banking system or passed on
- Authorities need to refrain from a one size fits all approach:
- BRRD article 55 (contractual recognition of bail-in) is causing competitive disadvantage to EU banks operating in non EU countries versus local banks
- An inactive bank bonds market for banks with significant operations in Eastern Europe and non-Euro countries may result in forcing debt into existing funding exclusively from capital and deposits
- Recommending a resolution strategy which doesn’t fit a bank’s business model is making it difficult to write pragmatic and implementable recovery and resolution plans
- Authorities need to improve coordination on information collection:
- IT and MIS is identified to be a key challenging structural impediment to enable a resolution as the accuracy and timeliness of required data is something that current banks systems may not yet have the ability to provide
- Coordination by regulators and resolution authorities in collecting information and standardisation of what information is collected across several jurisdictions and setting bail-inable capital targets