Yes, we agree that a bank’s escalation framework for recovery planning purposes should include both quantitative and qualitative indicators, which is aligned with the approach DB has taken in regards to its group recovery plan. The purpose of recovery indicators is to help a bank’s recovery and resolution governance committee and the bank’s senior management determine whether to take mitigating actions, execute individual recovery measures and/or invoke the recovery plan. This recovery escalation framework, including the recovery indicators framework, has been embedded in DB’s overall risk management and risk appetite framework – an approach that should be considered for these guidelines as well.
DB’s group recovery plan escalation framework follows a gradual process consisting of various types of recovery indicators. We would suggest adjusting the Guidelines to reflect the gradual nature of recovery plan escalation frameworks as well as a clear separation, especially between indicators that reflect an early warning stage and more definite recovery triggers.
From DB’s perspective, the categories of indicators in this article are comprehensive and sufficient. We would, however, suggest including an additional category covering operational indicators.
Generally, we welcome the EBA’s approach, which sets minimum high level requirements and largely avoids a prescriptive approach. We however encourage also applying the proposed gradual approach to the definition of categories and their relevance and positioning in the escalation process. We see this as advantageous to the recovery process, as e.g. market and macroeconomic indicators have a significantly higher value to early warning indicators as they do in identifying the triggering of the recovery mechanism. A category of operational risk indicators (e.g. internal or external loss events) could further add to a comprehensive assessment and therefore could be included.
We would however flag that some of the indicators are repetitive or consider less sensitive metrics such as the CET1 ratio versus the total capital ratio.
Although we agree with the overall indicator categories listed in Section A and B of Annex I, our view is that the specific recovery plan indicators should be derived from the institution’s individual escalation process in the context of its recovery plan. We feel a set of different indicators to the ones described in Section C, Annex I, could still serve as relevant to the defined categories in Sections A and B. These indicators should be embedded in the bank’s risk and recovery frameworks. Recovery triggers, risk drivers, early warning indicators as well as macro indicators and peer indicators could be stages of escalation and timely monitoring to be included in a bank’s recovery plan. These categories could include both quantitative and qualitative indicators, as they are embedded in DB’s overall risk management and risk appetite framework and in some cases are also used for regulatory monitoring (for instance on capital and liquidity adequacy). Given that the overall recovery plan escalation process and the framework of quantitative and qualitative indicators have various dimensions and are tailored to institution-specific vulnerabilities and risks, we do not see beneficial value in prescribing specific indicators per category, as outlined in Annex I, Section C. This is especially our perspective on the specific list of indicators as defined under categories 5 (Market based indicators) and 6 (Macroeconomic indicators), as for these category a wide set of indicators is available and banks shall have the discretion to include their own indicators to monitor these categories.
Lastly, it may be worth clarifying in Annex I of the draft Guidelines whether all specific indicators listed under section C of the table are subject to rebuttable presumption or just those listed under section 5 and 6.
We strongly advise against setting thresholds for the quantitative recovery indicators, given that these would not take into account the bank’s individual risk profile, business model, organisational structure and specific vulnerabilities. As stated earlier in this response, a bank’s individual recovery plan escalation framework is integrated in the bank’s overall risk management and risk appetite framework to ensure a bank’s management can consider the full range of risks and options it may face in a situation of financial distress. Any thresholds for quantitative recovery indicators could interfere with the bank’s own ability to recover in an event of stress and would lead de facto to new minimum regulatory thresholds, which is not the purpose of these draft guidelines.
We agree with the assessment of the impact of the technical options under area A (Categories of recovery plan indicators), C (Nature of the recovery plan indicators) and D (Thresholds for the quantitative recovery plan indicators). However, for B (Minimum list of recovery plan indicators), while we understand the need for the EBA to provide guidance on specifying the types of recovery plan indicators to ensure consistency and comparability across the bank specific recovery plans, we would prefer to see the list of specific indicators included as an illustrative list, with special emphasis on refraining from defining specific indicators for the proposed categories 5 (market based indicators) and 6 (macroeconomic indicators) as outlined in our response to question 3.