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November 12, 2018

Benchmarking recovery & resolution plans of banks

Executive summary

 

Recovery and resolution plan (RRP) has emerged as an important supervisory and regulatory requirement. The driving factors of this include identification of ‘core’ businesses, capital allocation, identifying various stress-market conditions, and valuation of entities in case of insolvency. It provides an action plan to ensure that financial institutions regain viability after going through a period of stress. However, the key is to adapt in a way that meets the regulatory requirements while providing more value and stability to the organization.

 

In this report, we examine the key elements of RRP submissions (under Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act) across four major US investment banks. We have identified five key parameters: 1) organization structure and strategy; 2) RRP process definition and stages; 3) operational preparedness; 4) focus areas and automation, and, 5) corporate governance as the broad categories under which the granular details of a RRP submission are covered.

 

While these parameters will help banks identify the overall landscape of the RRP Program and align with the global best practices, it will also guide them on the focus areas for the next phase of RRP Program

 

Our comparative analysis identifies the organizational structure, which includes dedicated personnel, teams and corporate governance as a critical part of designing the RRP strategy. Post design, outlining of a detailed feasible RRP Program necessitates the definition of stages and internal triggers to identify and measure risks, identifying operational needs in terms of core business areas, scenario testing, and playbook creation in a step by step approach.

 

However, institutions today are also considering efficiency in aggregation of data and analytics, automation of forecasting scenario-testing models, and generating an output that’s implementable – and not just theoretical – as the key success measures of their RRP program.