Publication alert: SRB - Operational guidance on the identification and mobilisation of collateral in resolution
We communicate that the Single Resolution Board (SRB) has published the Operational guidance on the identification and mobilisation of collateral in resolution.
1. Context
On April 2020, the Single Resolution Board (SRB) published the Expectations for Banks (EfB) which sets out the capabilities to show that banks are resolvable including the dimensions of Operational Continuity in Resolution (OCIR) and access to Financial Market Infrastructures (FMIs). According to the EfB, banks are expected to establish processes and develop capabilities to identify and mobilise collateral in resolution.
In this context, the SRB has published its operational guidance on the identification and mobilisation of collateral in resolution which complements the Expectations for Banks document and help to understand he operational and legal requirements that banks need to anticipate in order to maximise the amount of assets that could be mobilised as collateral in and after resolution.
2. Main points
Collateral governance and management framework in resolution. Banks are expected to provide targeted information on their collateral management framework to ensure that the framework: i) can support the execution of the resolution process; ii) is suited to the specific circumstances of a resolution scenario; and iii) would not be adversely impacted by any potential measure that could separate the entities in the group, such as transfer tools.
Identification of assets to be used as collateral in resolution. Banks are expected to have the required capacity to identify the legal, operational and practical availability of collateral within the resolution group. Furthemore, it is expected that banks: i) develop capabilities to accurately identify all assets that could be used as collateral in resolution; ii) have the capabilities to identify the location of available collateral within all relevant key liquidity entities (KLEs) of the resolution group; iii) have adequate management information system (MIS) capacity enabling them to value, provide documentation and monitor the evolution of available collateral, and provide updated reports on a regular basis.
- Assets eligible as collateral for accessing ordinary Central Bank (CB) facilities. The inability to assess the eligibility of collateral, for example because of data quality issues, should not result in a classification of the collateral as not eligible. Banks should describe the root causes of its inability to assess the eligibility of collateral and present a plan to remedy these root causes.
- Assets not eligible as collateral for accessing ordinary CB facilities. Assets not eligible for CB facilities can be used as collateral to obtain funding during resolution. This asset class could be used to obtain funding via private markets.
Mobilisation of collateral in resolution. Banks are expected to perform an assessment on their ability to: i) identify any legal and operational barriers to the mobilisation of local and cross-border collateral; ii) identify private counterparties to get access to secured funding in resolution; iii) identify the time that it would take to mobilise collateral to obtain access to funding.
- Assets eligible and not elegible as collateral for accessing ordinary CB facilities. Banks are expected to develop the necessary capacity to mobilise non-marketable assets that are eligible as CB collateral on a cross-border basis. As well as to document assets that are deemed non-eligible as CB collateral.
- Mobilisation of collateral under different resolution strategies. In a single point of entry (SPE) strategy, the presumption is that the resolution group should be ready to guarantee sufficient funding for critical economic functions and the core business lines of the whole resolution group, especially when sufficient private sector funding is unavailable. Under an multiple point of entry resolution (MPE) Strategy, each resolution group should be able to manage its own liquidity independently, in case the group is separated during resolution.