Requirements for the calibration of recovery plan indicators

For the calibration of the indicator framework the institution should take into account the following:

• a. The overall recovery capacity of available options: institutions with a more limited overall recovery capacity should consider an earlier breach of recovery plan indicators to maximise chances of successful implementation of their more limited recovery options.
• b. The timeframe and complexity of the implementation of recovery options, considering governance arrangements, regulatory approvals required in all relevant jurisdictions and potential operational impediments to execution. Institutions which rely on options that are more complex to execute and are likely to take more time to implement should have indicators calibrated accordingly in a more conservative way, to allow sufficient advance warning.
• c. At which stage of the crisis the recovery option can realistically be used effectively. In considering this aspect, the institution should take account of the fact that for some types of options the full benefits could be difficult to reach later in the stress situation as opposed to early implementation. For example, in the case of the recovery option of ‘ raising capital in the market ’ an institution should consider if and when this can realistically be achieved. Institutions should acknowledge that it might become more difficult to raise external capital the closer the institution comes to breaching its capital requirements.
• d. The pace of deterioration in a crisis. Institutions should acknowledge that, while the pace of deterioration will ultimately depend on the specific circumstances of the crisis, specific institutions’ profiles, including but not limite d to institutions with a less diversified business model as well as other individual circumstances, may result in swifter deterioration of the institution’s financial position and in a shorter timeframe being available for the implementation of recovery options. In this respect, institutions should also consider using indicators showing deterioration over time to detect situations in which a rapid and substantial deterioration of an institution`s financial position (e.g. capital) occurs. Moreover, monitoring the change in a metric should be considered where it is difficult to define a single point in time where escalation is needed.
• e. The institution’s risk management framework (including the ICAAP) and risk appetite framework. An institution should ensure that the calibration of recovery plan indicators is consistent with its risk management and risk appetite framework (e.g. early warning framework, contingency and business continuity plans).

An institution should be able to provide the competent authority with an explanation of how the calibrations of the recovery plan indicators have been determined and to demonstrate that the thresholds would be breached early enough to be effective.

The appropriateness of the calibrations of the recovery plan indicators should be regularly monitored and, pursuant to Article 5(2) of Directive 2014/59/EU, updated at least annually or more frequently where the update, as proposed by the institution, is needed due to a change in the financial and business situation of the institution. Any update in the calibration of recovery plan indicators should be promptly and duly notified, explained and justified to the competent authority. Such an update should be agreed by the competent authorities when making their assessment of the recovery plan.

Competent and resolution authorities could decide to implement temporary relief measures in the case of a systemic crisis with the aim of alleviating the regulatory burdens that could adversely impact the institutions’ ability to continue supporting the real economy. Considering the temporary nature and the specific objective of those supervisory and resolution relief measures, their granting should result in no automatic change to the calibration of recovery plan indicators by the institutions.

Competent authorities may agree to the update of the calibration of the recovery plan indicators in duly justified cases such as the following:

• a. The recalibrated indicators comply with the general requirements for the calibration of recovery plan indicators as outlined under paragraph 27.
• b. Those changes reflect changes to the institution’s business and financial profile and are aligned with the internal risk management and risk appetite framework of the institution.
• c. The recalibration does not go against the objectives of supervisory relief measures.
• d. The capital indicators are at all times calibrated at levels exceeding the relevant amount of own funds required pursuant to Parts Three, Four and Seven of Regulation (EU) No 575/2013, Chapter 2 of Regulation (EU) 2017/2402 and point (a) of Article 104(1) of Directive 2013/36/EU as relevant.