European Savings and Retail Banking Group

ESBG agrees that quantitative and qualitative indicators should be included in recovery plans. However, within the set of recovery indicators that the EBA proposes, we believe that differentiation is needed so as to reflect the importance of certain indicators with regard to recovery and resolution against other indicators that are rather considered as early warning indicators.

We therefore suggest the following two-fold approach:

I. A first set of binding recovery indicators which should cover the capital and liquidity indicators. These indicators should have thresholds which will trigger an escalation process so as to decide whether it is needed to implement the recovery plan or not;
II. A second set of ancillary indicators which should cover profitability, asset quality, market based and macroeconomic indicators. The monitoring of these ancillary indicators would allow to potentially anticipate distressed situations not yet reflected by the binding recovery indicators (capital and liquidity). Therefore, ancillary recovery indicators would not have an associated trigger, but be thoroughly assessed by a senior internal committee applying expert criteria and a historical perspective and drawing comparisons with respect to peers. This set of indicators will not automatically activate the escalation process.
ESBG does not believe that further categories would be necessary. However, if in the future the capital regulatory framework includes new elements, such as the minimum requirement for own funds and eligible liabilities (MREL), they could perhaps be included in the list of indicators, provided that they are relevant for the respective institutions.
In principle ESBG agrees with the list. However, a certain degree of differentiation between categories (binding vs. ancillary indicators), as explained in the response to question 1, could be introduced.
ESBG is not in favour of the EBA establishing the precise thresholds for quantitative indicators. We rather believe that each entity should be able to set the thresholds based on its business and risk management model. Therefore, a one-size-fits-all approach for the thresholds is not a workable solution in our opinion.
Sebastian Stodulka