The EBA sets 2025 priorities for resolution authorities and reports on the progress achieved in 2023.

On August 13, 2024, the European Banking Authority published its European Resolution Examination Programme Report. The Report sets three main priorities for resolution authorities and banks for 2025: (i) operationalisation of their resolution tools, (ii) management information system for valuation, and (ii) liquidity strategies in resolution. The Report also looks at the progress achieved in 2023 and identifies areas of improvement.

Executive Summary

The publication from the European Banking Authority (“EBA”) sets out the priorities for resolution authorities for 2025 and reports on the progress achieved in 2023. It focuses on ensuring the effective implementation of resolution strategies, enhancing management information systems (“MIS”) for valuation, and improving liquidity strategies during resolution. The Report also highlights the challenges encountered and the measures taken by resolution authorities to improve banks' resolvability and readiness to handle financial crises effectively.

In August 2023, the EBA published its first Report on the implementation of the European Resolution Examination Programme (“EREP”). The EBA is currently publishing its second report on resolution convergence (building on the key topics, ongoing priorities, and expectations to ensure convergence in resolution practices, as identified in the first Report) which (i) sets key topics that all RAs are requested to incorporate into their priorities for next year (“EREP 2025”) and (ii) monitors how the key topics identified in the EBA’s 2023 EREP embedded in resolution authorities’ (“RAs”) work for 2023. The Report summarises information from the EBA monitoring for 2023 with the reference date of end of December 2023.

On this basis, three 2024 EREP priorities – (i) operationalisation of the resolution strategy, (ii) MIS for valuation and (iii) operationalisation of the liquidity strategy in resolution – will continue for 2025, although with updated objective elements.

For 2023, the EBA had set four key priorities to follow for resolution authorities: (1) addressing MREL shortfalls, (2) management information systems for valuation, (3) liquidity needs in resolution and (4) operationalisation of the bail-in tool. The main findings on monitoring their implementation during 2023 are the following:

(1)     MREL Monitoring:

• As of 31 December 2023, 331 banks with external MREL decisions and resources reported to the EBA. Only 4 banks breached MREL requirements as of January 2024.
• RAs are focusing more on the quality and enforceability of MREL instruments. A main concern is noted with respect to effectiveness and limited legal certainty regarding the enforceability of bail-for contracts governed by third-country law. 

(2)    MIS for Valuation:

• Banks are expected to have adequate Management Information Systems (“MIS’) by end-2024, though progress varies. Testing is crucial, with challenges in data quality, automation, granularity and timeliness, and valuation procedures, especially in appointing independent valuers quickly.

(3)    Liquidity in Resolution:

• Progress was made, but challenges persist. RAs are revisiting liquidity strategies post-2023 crises, focusing on collateral mobilization and increasing testing.
• Half of the EU RAs have developed operational capabilities for potential use of moratorium powers. RAs consider the use of moratorium powers useful in the context of resolution, but technical, operational and legal challenges remain.

(4)    Operationalisation of the Bail-In Tool:

• Not all RAs have yet provided access to their policy in relation to bail-in mechanisms. The EBA will continue to monitor compliance.
• Stakeholder preparedness for bail-in is low, with challenges in identifying instrument holders, trading suspension, and issuing new instruments, especially concerning third-country stakeholders.

Considerations and limitations

Concerning the findings of the Report, the following considerations, as outlined below, should be taken into account for a correct understanding of the outcomes of the exercise. 

• Various events may have affected market conditions between the reference date of the survey and the report publication date, but such developments were not included in the main findings of the report, unless specific reference is provided.
• Work on resolvability is continually progressing and at the time of publication of the report there may be more advances in various areas. Such progress will be covered in the subsequent iterations of the resolution convergence report.
• The resolution planning cycles may differ between authorities and between different resolution colleges.
• While the banks in scope of the EREP are all those designated for resolution, those banks vary in size from Global Systemically Important Institutions (“G-SIIs’) and Other Systemically Important Institutions (“O-SIIs”) to small and medium-sized banks. Further, some banks have been designated for resolution only recently, meaning that the compliance for full resolvability is being gradually addressed by authorities, as foreseen by the EBA GLs on resolvability. As a result, progress in terms of resolution planning on the key topics varies across the sample.

Introduction to the framework

ERER – the resolution convergence report

The EREP is an EBA programme introduced in 2021 aimed at fostering convergence of resolution practices in the EU. The EREP (i) focuses the attention of resolution authorities (RAs) on priority topics of importance to resolution work and (ii) assesses convergence of resolution authorities’ practices, ultimately driving convergence in the related resolution work across the EU.  In parallel with the annual EREP, the EBA sets the European Supervisory Examination Programme (“ESEP”), which aims at enhancing convergence across the prudential supervisory cycle.

Side notes on resolution strategies

Resolution strategies are plans developed by resolution authorities (“RAs”) to manage the failure of a financial institution in a way that minimizes the impact on the broader financial system and protects public funds. These strategies aim to ensure the continuity of the institution's critical functions. Key elements of resolution strategies include the use of tools like bail-in (where shareholders and creditors absorb losses), sale of business, and bridge institutions.

The 2025 EREP priorities

Approach for setting 2025 EREP key topics

In line with previous EREP cycles, the selection of the key topics for 2025 has been driven by:

• the areas in crucial need of progress from the assessment of banks’ resolvability including from the conclusions of the previous EREP reports (e.g., ongoing 2024 EREP priorities)
• priorities emerging from the lessons learnt from crisis cases (e.g., requirement of sufficient liquidity to support resolution and operationalisation of the resolution strategies)
• relevant topics deriving from the application of the EBA’s policy products
• the practices observed at EU and international level to ensure that the selected key topics are informed by the most pressing priorities that resolution authorities are considering.

During 2025, it is expected that RAs will work on formulating the range of assessments to be carried out and developing the first multi-annual testing programme for banks to test their resolvability capabilities from 2026 onwards. Given that work to pursue progress in resolvability is complex and it will extend over multiple years, most 2025 EREP priorities are unchanged compared to previous years.

The 2025 EREP key topics are the following:

2.    Operationalisation of resolution strategies

The key focus for 2025 is the continued development and readiness of resolution strategies, emphasizing the need for both preferred (Preferred Resolution Strategy – “PRS”) and alternative plans in case the main strategy fails. RAs are tasked with addressing potential challenges relevant to the execution of the bail-in process, especially in cross-border scenarios and with third-country instruments. They should also work on defining transfer perimeters and testing bridge bank strategies, ensuring these approaches are mature and involve thorough appropriate testing, simulation exercises, and stakeholder engagement.

The MREL priority is not included as a separate key topic for 2025, but it has been incorporated into the key topic of operationalisation of the bail-in tool with respect to the aspects of monitoring the quality of MREL instruments.

2.    MIS for valuation

The focus for 2025 is on enhancing the MIS used for valuation during resolution. This involves improving data production, accuracy, and quality. RAs and banks are expected to have a clear understanding of the time required for report delivery, setting up virtual data rooms, and ensuring data completeness and accuracy. Specific testing activities targeting these aspects should be included in the multi-annual testing programs to ensure readiness for resolution execution.

3.    Operationalisation of liquidity strategies in resolution

The 2025 focus on liquidity in resolution involves assessing the feasibility of banks' strategies to secure liquidity during resolution, particularly in terms of collateral identification, mobilization, and reporting. RAs and banks should understand the time required for resolution-specific reporting and liquidity mobilization. Additionally, RAs should develop and use standard crisis scenarios (or at least minimum scenario features) with appropriate assumptions, incorporating findings into resolution planning to ensure readiness and effectiveness in managing liquidity during crises. The findings from this approach should be incorporated into the resolution planning.

Summary and Outlook

The 2024 EBA Resolution Convergence Report highlights the ongoing efforts and significant progress made by resolution authorities across the EU in enhancing resolvability and readiness to manage financial crises effectively. The focus for 2025 will continue on critical areas such as, the operationalisation of resolution strategies, MIS for valuation, and liquidity management. Despite advancements, challenges remain, particularly in cross-border resolutions and ensuring the enforceability of MREL instruments. Looking ahead to 2025, ongoing testing, monitoring, and collaboration will be crucial to further strengthen resolvability and maintain financial stability across the EU.

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