The Single Resolution Board (SRB) has published new guidance on liquidity and funding in resolution. Banks are likely to face liquidity stress in resolution because of the reluctance of market participants to roll-over or provide funding to a bank in crisis. Even after a successful resolution, liquidity stress may persist for some time due to the asymmetry of information regarding the viability of the resolved bank’s business model. Despite that, banks need to ensure that they continue to meet their obligations as they fall due during the different resolution phases.
As outlined in the SRB’s Expectations for Banks (EfB) document, banks are expected to:
- develop methodologies to estimate ex-ante the liquidity needs for the implementation of the resolution strategy;
- be able to measure, report and forecast their liquidity position and relevant liquidity metrics during the resolution process; and
- be able to identify and mobilise assets (especially of lower quality and less liquid) that could be used as collateral to obtain liquidity in resolution anticipating any legal, regulatory and operational obstacles to their mobilisation under stressed conditions.
This guidance focuses on the estimation of liquidity needs, and aims to enhancing banks’ resolvability and preparedness for a potential resolution. Banks will be assessed on this element in the 2021 resolution planning cycle.
There will be further guidance for the two remaining elements in 2022.
The Expectations for Banks are subject to a gradual phase-in according to the general phase-in dates. This also applies to expectations on liquidity and funding in resolution, which are expected to be fully met by the end of 2023.