Cross-border banks must develop recovery plans by the end of the year, says EBA

EU banking supervisor the European Banking Authority (EBA) has adopted a formal recommendation (22-page / 241KB PDF) instructing 39 named banks to submit their plans to the relevant national supervisor by the end of 2013. Four UK-based banks - Barclays, HSBC, Lloyds and RBS - have until this date to submit their plans to the Financial Services Authority (FSA) or its equivalent.

Although EBA recommendations are not binding, national supervisors who do not intend to comply will be asked to justify their position. The EBA has asked respondents to notify them as to whether they comply or intend to comply with the recommendation by 23 March, or be "considered ... non-compliant". Notifications will be displayed on the EBA's website.

"Considering that at least 15 banks within the Union have already started drafting recovery plans following the initiative of the Financial Stability Board (FSB), and other national initiatives are under way, the aim of the recommendation is to ensure consistency across the Union and convergence on the highest standards, by extending the development of recovery plans to the [named banks] and making sure that the plans are discussed within the respective supervisory colleges, which are closely monitored by the EBA," the regulator said in its recommendation.

The document also sets out a template for group recovery plans, which meets the international standards agreed to by the FSB. Plans should include general but comprehensive information on the bank and its governance, and set out how plans will be implemented and updated. Banks should set out the options available to them in a crisis situation, and assess how they will be carried out and their likely effects, the EBA said.

The draft Recovery and Resolution Directive (RRD), proposed by the European Commission in June last year, will give the EBA formal responsibility for developing and co-ordinating consistent recovery and resolution plans (RRPs) for European banks. The EBA said that its recommendation would fill the "interim period" before a comprehensive legislative framework was implemented at EU level.

The European Commission's proposals will require both banks and investment funds to draw up 'recovery plans', setting out the measures they will take to restore viability should their financial situation deteriorate. National regulators will have to prepare 'resolution plans' containing options for dealing with banks that are no longer viable, at both group level and for each individual institution, and will be able to force banks to change their "legal or operational structures" if they identify obstacles during the winding-up process.

National regulators will be expected to intervene where a particular bank does not meet or is likely to be in breach of its capital requirements. They will be able to require the bank to implement any of the measures set out in its recovery plan, draw up plans for further action and appoint a 'special manager' to restore the financial status of the bank if the situation is sufficiently serious. The new framework will also enhance cooperation between national regulators in cross-border actions, with the EBA given the power to facilitate joint actions and act as a binding mediator if necessary.