The resolvability assessment is primarily regulated in the Bank Recovery and Resolution Directive, Law 11/2015 and its implementing regulation. In addition, at banking union level, the Single Resolution Board has drawn up various guidelines and regulatory documents to provide guidance for authorities and institutions when assessing resolvability. This regulation sets out the criteria and procedures for assessing whether an institution or group is resolvable. This assessment seeks to determine whether these institutions and groups can be resolved or wound up if necessary, thereby ensuring financial stability.
Resolvability assessment of institutions and groups
The resolvability assessment of an institution is based on a number of factors, including its financial position, its ability to fulfil its obligations and the existence of viable restructuring plans. The resolution authority must consider whether the institution can be restructured or wound up without making use of public funds. In the case of groups, the resolvability assessment considers the interconnectedness between entities and the possible impact on the financial system. The financial position of each entity within the group is assessed, as is the group’s ability to fulfil its obligations. The potential effects of a group entity’s resolution on the other entities and on the financial system in general are also considered.
Impediments to the resolvability of institutions and groups
It is important for the resolution authorities to identify impediments to resolvability and monitor the actions to be taken to address them. Law 11/2015 sets out the factors and procedures for identifying and removing the impediments to resolvability of a credit institution, an investment firm or a group of entities. The aim is to ensure that these institutions can be restructured or wound up in an orderly manner, without causing financial stability problems.
The Law identifies several potential impediments to the resolvability of an institution or group, such as a lack of transparent financial reporting, the existence of complex organisational structures, an inability to ensure the continuity of essential third-party services, the complexity of interconnections between group entities, difficulties derived from the regulatory frameworks applicable across different jurisdictions, and the possible fragmentation of the group’s assets. The resolution authority must assess these impediments and develop strategies to mitigate them, thereby ensuring that the institution or group can be restructured or wound up in an efficient manner.