What are the single-point-of-entry and multiple-point-of-entry strategies for cross-border bank resolution?

Question

AcadiFi · Accepted Answer

When a G-SIB with operations in multiple countries fails, resolution authorities must coordinate across borders. The **Financial Stability Board (FSB)** identified two main strategies: **Single Point of Entry (SPE)** and **Multiple Point of Entry (MPE)**.

**Single Point of Entry (SPE)**

Resolution is initiated **only at the top-level parent** (usually the holding company). Losses are absorbed at the parent level through bail-in of the parent's TLAC, and subsidiaries continue operating without entering resolution themselves.

**Multiple Point of Entry (MPE)**

Resolution is initiated **simultaneously at multiple entities** across jurisdictions. Each material subsidiary enters its own resolution proceeding, absorbing losses locally.

```mermaid
flowchart TD
    subgraph SPE
        A["Parent HoldCo enters resolution"] --> B["Subsidiary A continues"]
        A --> C["Subsidiary B continues"]
        A --> D["Subsidiary C continues"]
        A -->|"Losses absorbed at parent via TLAC bail-in"| E["Recapitalized HoldCo"]
    end
    subgraph MPE
        F["Sub A enters local resolution"] --> G["Resolved by Authority A"]
        H["Sub B enters local resolution"] --> I["Resolved by Authority B"]
        J["Sub C enters local resolution"] --> K["Resolved by Authority C"]
    end
```

**Detailed Comparison**

| Feature | SPE | MPE |
|---|---|---|
| Resolution trigger | Parent HoldCo only | Multiple entities simultaneously |
| TLAC location | Concentrated at parent; downstreamed to subs as internal TLAC | Distributed — each sub holds external TLAC |
| Coordination required | **High** — home authority leads, hosts must defer | **Lower** — each authority acts independently |
| Best suited for | Centralized banking groups (US model) | Decentralized groups with independent subs (EU model) |
| Typical examples | US G-SIBs (JPMorgan, Citigroup) | European G-SIBs (HSBC, Santander) |
| Advantages | Preserves group synergies; single process | Reduces cross-border coordination; each authority controls local resolution |
| Risks | Host authorities may not trust home authority; may ring-fence assets preemptively | Fragmentation; duplication of TLAC costs; loss of group synergies |

**Worked Example — SPE**

Ridgeway Financial Group (US HoldCo) has subsidiaries in UK, Japan, and Singapore.

A $45B loss in the UK subsidiary is transmitted to the parent via writedown of internal TLAC:

| Step | Action |
|---|---|
| 1 | UK subsidiary's losses exhaust its equity ($18B) |
| 2 | Internal TLAC loaned by parent ($27B) is written down |
| 3 | Parent HoldCo absorbs total $45B loss |
| 4 | FDIC bails-in parent's external TLAC bonds |
| 5 | UK subsidiary is recapitalized via new internal TLAC injection |
| 6 | Japan and Singapore subsidiaries are unaffected |

**Internal TLAC (Pre-Positioning)**

For SPE to work, the parent must pre-position **internal TLAC** (intercompany loans/guarantees) at each material subsidiary. This ensures the parent can absorb subsidiary losses without the subsidiary entering local resolution.

The FSB requires internal TLAC to be at least **75-90%** of the amount that would apply if the subsidiary were a standalone resolution entity.

**Key Challenges:**
- **Trust deficit** — host authorities fear the home authority will favor domestic creditors
- **Pre-positioning costs** — trapped capital in subsidiaries reduces group efficiency
- **Trigger coordination** — in MPE, simultaneous action across time zones is operationally complex
- **Legal recognition** — bail-in under one country's law may not be recognized in another

**Exam Tip:** FRM questions often test SPE vs. MPE trade-offs and may ask which strategy is more appropriate for a centralized versus decentralized banking group.

For more on resolution frameworks, explore our FRM Part II question bank.

What are the single-point-of-entry and multiple-point-of-entry strategies for cross-border bank resolution?

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