Response to consultation on draft guidelines to resolution authorities on the publication of their approach to implementing the bail-in tool
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General Remarks:
To meet the demands of the authorities in terms of bail-in implementation, French banks have already done lot of work in recent years and they have now done as much as they can with the means and materials at their disposal. Indeed, they have already described in lot of details how they envisage the process, but they are currently stuck on certain subjects and would therefore need more detailed input from their resolution authorities. Some banks have also detailed in their playbook the limits of the exercise or the questions that remain unanswered due to the lack of information from the resolution authorities.
Therefore, the industry welcomes today this Consultation Paper which will allow national resolution authorities to take over on certain subjects, in particular those on which the banks encounter difficulties in moving forward and which require their assistance. Indeed, on certain technical subjects, banks cannot progress any further today without clarifications from their authorities and need their support (especially in the dialogue with FMIs such as CSDs) rather than working individually.
However, the industry regrets that this consultation launched by the EBA, comes so late considering the communication already made by the banks of several editions of their bail-in playbook to their IRT, and the planning and realization in progress of tests (“dry runs”) by the institutions to assess their operationalization capabilities.
Furthermore, they believe that there is a mismatch in expectations and timetable between banks on the one hand and resolution authorities on the other. Many aspects of the external/internal execution of the bail-in have not yet been clarified by the resolution authorities, while strong expectations have been placed on banks for several resolution cycles and significant costs have already been incurred (both human and financial) to comply with the authorities' current expectations. This creates a prejudicial situation and an operational uncertainty for banks that are not immune to new requirements from their authorities with a little more than a year to go before the announced resolvability deadline to fully comply with the “Expectations for Banks” of the SRB.
The industry therefore expects a lot from this consultation and hopes that the response of the authorities will be as detailed as possible, even though the first version to be published on January 1, 2024 can be completed later. Indeed, a "high level description" by the French resolution authority (ACPR) of the topics indicated by the EBA in its guidance may have only limited relevance for the definition/finalization of the procedures/playbooks of banks. These descriptions must therefore be as operational/detailed as possible in order to allow banks to progress and finalize/refine their playbooks, or even prepare for an extension of the next dry run to external stakeholders (authorities, central securities depositories etc.).
That is why it would be necessary in our view to extend the deliverable of the resolution authorities to the following topics:
• Description of the selection process of relevant instruments including the authorities’ criteria which would be used to assess the case of senior preferred liabilities and communication of bail-in instructions (format, details depending on whether write-down/conversion is full or partial).
• Clarification on the conversion and interim instruments to be used.
• Description of the national CSD's role in the conversion of bailed-in instruments not deposited with the national CSD, including delivery of the new equity and delivery/conversion of interim instruments.
• Description of the national resolution authorities’ interactions with resolution authorities outside of European jurisdictions, in particular with the US and Japan, but also with local market participants and local CSDs such as DTC or JASDEC.
• Clarification of their role regarding market interventions (e.g. suspension of trading).
• Clarification on their National Implementing Acts (NIA) that would formally trigger the resolution and implement the bail-in (i.e. a fully-fledged template like the one published by the Bank of England should be the standard).
• Detailed description of all the interactions that the resolution authorities could have with the different stakeholders (market, banks, other authorities, medias, ...) with the corresponding timeline starting before the bail-in decision (NIA) until the end of the bail-in process (e.g: the delivery of shares in case of material discrepancy between the provisional and final valuation 2).
Q1: Do you have any comments on the proposed guidelines?
The French Banking Federation (“FBF”) welcomes the opportunity to express the views of the French banking industry on the public consultation on draft guidelines to resolution authorities on the publication of their approach to implementing the bail-in tool. In this context, we herewith provide you with our general remarks on the Consultation Paper. We would appreciate that you take our comments into consideration, and we remain at your disposal for further clarifications.General Remarks:
To meet the demands of the authorities in terms of bail-in implementation, French banks have already done lot of work in recent years and they have now done as much as they can with the means and materials at their disposal. Indeed, they have already described in lot of details how they envisage the process, but they are currently stuck on certain subjects and would therefore need more detailed input from their resolution authorities. Some banks have also detailed in their playbook the limits of the exercise or the questions that remain unanswered due to the lack of information from the resolution authorities.
Therefore, the industry welcomes today this Consultation Paper which will allow national resolution authorities to take over on certain subjects, in particular those on which the banks encounter difficulties in moving forward and which require their assistance. Indeed, on certain technical subjects, banks cannot progress any further today without clarifications from their authorities and need their support (especially in the dialogue with FMIs such as CSDs) rather than working individually.
However, the industry regrets that this consultation launched by the EBA, comes so late considering the communication already made by the banks of several editions of their bail-in playbook to their IRT, and the planning and realization in progress of tests (“dry runs”) by the institutions to assess their operationalization capabilities.
Furthermore, they believe that there is a mismatch in expectations and timetable between banks on the one hand and resolution authorities on the other. Many aspects of the external/internal execution of the bail-in have not yet been clarified by the resolution authorities, while strong expectations have been placed on banks for several resolution cycles and significant costs have already been incurred (both human and financial) to comply with the authorities' current expectations. This creates a prejudicial situation and an operational uncertainty for banks that are not immune to new requirements from their authorities with a little more than a year to go before the announced resolvability deadline to fully comply with the “Expectations for Banks” of the SRB.
The industry therefore expects a lot from this consultation and hopes that the response of the authorities will be as detailed as possible, even though the first version to be published on January 1, 2024 can be completed later. Indeed, a "high level description" by the French resolution authority (ACPR) of the topics indicated by the EBA in its guidance may have only limited relevance for the definition/finalization of the procedures/playbooks of banks. These descriptions must therefore be as operational/detailed as possible in order to allow banks to progress and finalize/refine their playbooks, or even prepare for an extension of the next dry run to external stakeholders (authorities, central securities depositories etc.).
That is why it would be necessary in our view to extend the deliverable of the resolution authorities to the following topics:
• Description of the selection process of relevant instruments including the authorities’ criteria which would be used to assess the case of senior preferred liabilities and communication of bail-in instructions (format, details depending on whether write-down/conversion is full or partial).
• Clarification on the conversion and interim instruments to be used.
• Description of the national CSD's role in the conversion of bailed-in instruments not deposited with the national CSD, including delivery of the new equity and delivery/conversion of interim instruments.
• Description of the national resolution authorities’ interactions with resolution authorities outside of European jurisdictions, in particular with the US and Japan, but also with local market participants and local CSDs such as DTC or JASDEC.
• Clarification of their role regarding market interventions (e.g. suspension of trading).
• Clarification on their National Implementing Acts (NIA) that would formally trigger the resolution and implement the bail-in (i.e. a fully-fledged template like the one published by the Bank of England should be the standard).
• Detailed description of all the interactions that the resolution authorities could have with the different stakeholders (market, banks, other authorities, medias, ...) with the corresponding timeline starting before the bail-in decision (NIA) until the end of the bail-in process (e.g: the delivery of shares in case of material discrepancy between the provisional and final valuation 2).