Guidelines on failing or likely to fail

Final and translated into the EU official languages

The Guidelines on the circumstances under which an institution shall be considered as ‘failing or likely to fail’ (triggers for resolution) ensure continuum between the on-going supervision conducted by national authorities in line with the CRD, and the Bank Recovery and Resolution Directive (BRRD). They aim at promoting convergence of supervisory and resolution practices in relation to how resolution should be triggered.

News

EBA consults on triggers for early intervention and resolution

22 September 2014

The European Banking Authority (EBA) launched today a consultation on two draft Guidelines on (i) the triggers for using early intervention measures (triggers for early intervention) and on (ii) the circumstances under which an institution shall be considered as ‘failing or likely to fail' (triggers for resolution). Both Guidelines ensure continuum between the on-going supervision conducted by national authorities in line with the CRD, and the Bank Recovery and Resolution Directive (BRRD). They aim at promoting convergence of supervisory and resolution practices in relation to how resolution should be triggered and how to apply early intervention measures. The consultations run until 22 December 2014.

The new BRRD regulatory framework has introduced a common set of early intervention measures that complement existing supervisory powers and measures, established under the CRD and applied according to the EBA Guidelines for common procedures and methodologies for SREP. The Guidelines on triggers for early intervention issued today by the EBA are addressed to competent authorities and clarify the conditions for using early intervention measures foreseen by the BRRD. The triggers for early intervention are to a large extent based on the outcomes of the SREP, expressed both in terms of Overall SREP score and scores for individual SREP elements. The draft Guidelines also provide the possibility of triggering early intervention measures on the basis of significant events and material deterioration or anomalies in the key indicators monitored by the competent authorities, before they are fully reflected in the SREP scores.

Determining that an institution is failing or likely to fail is the necessary element to start any resolution process. This determination is made by the relevant competent authority, but Member States may grant this power to the relevant resolution authority too. In this regard, the draft Guidelines provide separate guidance for the competent authorities, where the determination is based primarily on the outcomes of the SREP assessment of the viability of an institution, and for the resolution authorities, where the determination is based on the objective elements specified in the Guidelines (which cover an institution's capital and liquidity position, as well as other requirements for continuing its authorisation).

While respecting the functional and operational independence of competent and resolution authorities, the Guidelines aim to ensure consistency in the outcome of their assessment of whether an institution is failing or likely to fail. In particular, the core areas to be assessed (i.e. capital position, liquidity position and other requirements for continuing authorisation) are covered both in the objective elements for the resolution authorities and in the SREP assessment conducted by the competent authorities. The scope of the draft Guidelines on resolution triggers is expanded to provide guidance on the consultation, as well as information exchange between the competent authorities and resolution authorities in order to determine if an institution is failing or likely to fail. The goal is to enhance coordination of supervisory and resolution practices.

The Guidelines published for consultation complement the EBA Guidelines for common procedures and methodologies for SREP and together they form a set of supervisory guidance linking on-going supervision, early intervention and resolution.

Consultation process

Comments to these consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 22 December 2014.

All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will then take place at the EBA premises on 10 November 2014 from 14.00 to 17.00 UK time.

Legal basis and next steps

The proposed Guidelines are based on Articles 27(4) and 32(6) of the BRRD, which mandate the EBA to promote convergence of supervisory and resolution practices on the circumstances determining when an institution is ‘failing or likely to fail' and on the consistent application of triggers for early intervention measures.

Press Release

EBA publishes guidelines on triggers for resolution

26 May 2015

The European Banking Authority (EBA) published today its final Guidelines on the circumstances under which an institution shall be considered as ‘failing or likely to fail' (triggers for resolution). These Guidelines aim at promoting convergence of EU supervisory and resolution practices in relation to how resolution should be triggered.

Determining whether an institution is failing or likely to fail is the necessary element to start any resolution process as it represents one of the three cumulative conditions for triggering resolution. This assessment is carried out by the supervisors, but Member States may additionally grant this power to resolution authorities.

Despite the fact that supervisors and resolution authorities would follow different procedures when determining whether an institution is failing or likely to fail, their decisions should be based on the same criteria and objective elements. This underlying principle is reflected in the final Guidelines, which lists under one single section all objective elements for determining whether an institution is failing or likely to fail These elements are applicable to both supervisors and resolution authorities. In addition, the Guidelines specify different sets of procedural rules addressed to each of these authorities, and establish the link between the supervisory review and evaluation process (SREP) and failing or likely to fail determination made by the supervisors.

With the aim of enhancing the coordination of supervisory and resolution practices, these Guidelines also provide additional guidance on the consultation and exchange of information between these authorities when deciding if an institution is failing or likely to fail.

Legal basis and background

These Guidelines have been developed according to Article 32(6) of the Bank Recovery and Resolution Directive (BRRD), which mandates the EBA to specify the circumstances under which an institution shall be considered as failing or likely to fail.

These Guidelines complement the EBA Guidelines on early intervention triggers and the Guidelines for common procedures and methodologies for the SREP. The three Guidelines together provide a sound set of guidance for supervisory practice in the EU banking sectors and link on-going supervision, early intervention and resolution.

These Guidelines, which are addressed to supervisors and resolution authorities, will apply from 1 January 2016. Following the publication of the English version, the EBA will make available, in due course, the translations of these Guidelines in all EU languages. Within two months from the publication of the translated Guidelines, supervisors and resolution authorities shall confirm to the EBA their compliance status, which will be disclosed on the EBA website.

Consultation Papers

Consultation paper on draft Guidelines on the interpretation of the different circumstances when an institution shall be considered as failing or likely to fail (EBA/CP/2014/22)

Summary 22/09/2014

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the circumstances under which an institution shall be considered as ‘failing or likely to fail’ (triggers for resolution). The Guidelines ensure continuum between the on-going supervision conducted by national authorities in line with the CRD, and the Bank Recovery and Resolution Directive (BRRD). They aim at promoting convergence of supervisory and resolution practices in relation to how resolution should be triggered. The consultation runs until 22 December 2014.

Determining that an institution is failing or likely to fail is the necessary element to start any resolution process. This determination is made by the relevant competent authority, but Member States may grant this power to the relevant resolution authority too. In this regard, the draft Guidelines provide separate guidance for the competent authorities, where the determination is based primarily on the outcomes of the SREP assessment of the viability of an institution, and for the resolution authorities, where the determination is based on the objective elements specified in the Guidelines (which cover an institution’s capital and liquidity position, as well as other requirements for continuing its authorisation).

The Guidelines on resolution triggers complement the EBA Guidelines on early intervention triggers and Guidelines for common procedures and methodologies for SREP. These three Guidelines together form a set of supervisory guidance linking on-going supervision, early intervention and resolution.

Consultation process

Legal basis and next steps

The proposed Guidelines are based on Article 32(6) of the BRRD, which mandates the EBA to promote convergence of supervisory and resolution practices on the circumstances determining when an institution is ‘failing or likely to fail’.

Responses

Public Hearing

Note: A Public Hearing is related to this consultation but is not visible to public users since the date is past