This piece of thought leadership discusses recovery planning for banks and financial institutions.
Banks have always had contingency plans. But the financial crisis demonstrated that many banks did not have viable plans to recover from severe shocks. As a result, EU legislation (the Bank Recovery and Resolution Directive “BRRD”) has been put in place to require banks to develop credible recovery plans. Contingency planning for more severe and wide‑ranging adverse scenarios should enhance the resilience of banks.
Banks should develop recovery plans that identify credible options to survive a range of severe but plausible stressed scenarios. This should be part of the good management of a bank, not just a response to a regulatory requirement. The recovery plan should also cover governance and decision‑making; the continuity of critical economic functions; the specification of trigger points to activate recovery options; and internal and external communications.
The EBA, the ECB and the Central Bank of Ireland have been assessing the credibility of banks’ recovery plans individually through feedback letters to individual banks from the ECB and from national supervisory authorities, including the Central Bank of Ireland.
Although this paper focuses on banks, there is a read‑across to other types of financial institution – including insurance companies and asset managers – and to financial market infrastructure such as central clearing houses.
KPMG member firms can help you navigate the key elements of a bank’s recovery plan drawing upon our experience and expertise across Europe.