What does resolution planning require and how do recovery and resolution plans differ?

Question

AcadiFi · Accepted Answer

**Recovery plan** (bank-drafted, approved by board, reviewed by supervisor annually): how the bank will restore itself in stress without external support. Includes: governance triggers, recovery options menu (asset sales, capital raises, deleveraging, business-line disposals), stress scenarios, estimated recovery capacity, communication plan.

**Resolution plan** (authority-drafted with bank input): how the bank will be resolved if it fails. Includes: preferred resolution strategy (SPE vs MPE), critical functions mapping, operational continuity arrangements, MREL/TLAC calibration, information needed during resolution, separability assessment for asset sales.

Example: Arndelsen Global Bank submits its recovery plan: 14 recovery options totaling €22B of recovery capacity — 5 capital options (€8B), 4 liquidity options (€6B), 3 cost-reduction options (€4B), 2 business disposals (€4B). Plan triggers: CET1 below 9.5%, LCR below 110%, 30-day funding gap >€3B.

The SRB's resolution plan designates SPE at the HoldCo level, maps 47 critical functions (payment processing, custody, systemic clearing), identifies 12 operational entities that must continue, and calibrates MREL at 24.5% of RWA.

```mermaid
flowchart LR
  A[Going Concern] --> B[Recovery Options]
  B --> C[Return to Viability]
  C --> A
  A --> D[Point of Non-Viability]
  D --> E[Resolution Tools]
  E --> F[Bail-in]
  E --> G[Sale of Business]
  E --> H[Bridge Bank]
  E --> I[Asset Separation]
```

Resolvability assessments identify impediments (e.g., complex group structure, FMI dependencies, data gaps) and mandate remediation. Poor resolvability can lead to supervisory actions including forced restructuring. FRM candidates should distinguish the four resolution tools and the trigger thresholds for each plan.

What does resolution planning require and how do recovery and resolution plans differ?

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