Section I. Assessment of the ‘scenario-specific recovery capacity’

To assess the ‘scenario-specific recovery capacity' provided by the institutions under each severe macroeconomic and financial stress, competent authorities should review the overall adequacy of the scenarios put forward by the institutions in accordance with Article 5(6) and Article 7(6) of Directive 2014/59 as specified in the EBA Guidelines on the range of scenarios to be used in recovery plans¹⁷ and in line with Title 4 of these guidelines.

¹⁷ EBA/GL/2014/06 of 18 July 2014.

In particular, competent authorities should assess whether scenarios are severe enough with respect to the criteria defined in paragraph 20. In the exceptional case under paragraph 21, competent authorities should assess the detailed explanation provided by the institutions (to still consider such a scenario severe enough) and decide whether the severity of the scenario is sufficient considering, inter alia, the overall risk profile of the institutions. In cases where competent authorities consider that the scenario envisaged by the institutions is not severe enough, they could require institutions, where appropriate, to make adjustments, including the resubmission of the recovery plan as a result of the material deficiency assessment in accordance with Article 6 of Directive 2014/59/EU. Competent authorities should not take into account the institutions’ ‘scenario-specific recovery capacity’ based on such a scenario when assessing the ORC.

Competent authorities should assess the credibility and feasibility, including the timeframe, the impacts and any constraining factors of the recovery options selected by the institutions and should challenge, in the context of the severe macroeconomic and financial stress, the extent to which institutions would be able to restore their viability and financial position.

Competent authorities should review, where appropriate and feasible, the assessment and calculation performed by the institutions covering in particular the following areas:

• a. feasibility/probability that a recovery option would be successfully implemented, including by reviewing the feasibility of the recovery options where these are assumed to be unrealistic or not driven by a proper assessment in line with paragraphs 16 to 18;
• b. the timeframe for the implementation of the recovery options, including by lengthening the expected timeframe for their implementation if the institution’s assessment is considered unrealistic. In cases where the recovery options timeframe would exceed the timeframe as defined in paragraph 24, only the effects observed within the relevant timeframes should be considered for the ORC assessment by the competent authority;
• c. assessment of the quantitative impact of the recovery options, including by adjusting the impact downwards or by applying haircuts to the quantification provided by institutions where the likely impact of the recovery options is not based on realistic and plausible assumptions and quantifications;
• d. additional constraining factors related to the simultaneous or sequential implementation of recovery options, as specified in paragraph 29, including by removing or adjusting the impact of specific options downwards where an interconnection between some of them is detected, giving priority, inter alia, to options with the highest feasibility level and/or with the most material impact in the given implementation period.

Competent authorities should take into consideration, where appropriate and available, peer group analysis in order to facilitate amongst other things:

• a. cross-institutional comparison of the type of recovery options to be implemented under the different scenarios, thereby identifying whether some specific types of options have been missed by an institution;
• b. peer group comparison of the expected financial impact from each type of recovery option under different stressed scenarios;
• c. cross-institutional comparison of the expected time required to implement a recovery option and to realise its benefits;
• d. cross-institutional comparison of the expected impediments and preparatory measures for each type of recovery option.