Recovery plan indicators

Capital indicators should identify any significant actual and likely future deterioration in the quantity and quality of capital in a going concern, including increasing level of leverage.

When selecting capital indicators the institution should consider ways to address the issues stemming from the fact that the capacity of such indicators to allow for a timely reaction can be lower than for other types of indicators, and certain measures to restore an institution’s capital position can be subject to longer execution periods or greater sensitivity to market and other conditions. In particular, this can be achieved by means of establishing forward-looking projections, which should consider material contractual maturities relating to capital instruments.

The capital indicators should also be integrated into the institution’s Internal Capital Adequacy Assessment Process (ICAAP) pursuant to Article 73 of Directive 2013/36/EU.

The thresholds for indicators based on regulatory capital requirements should be calibrated by the institution at adequate levels in order to ensure a sufficient distance from a breach of the capital requirements applicable to the institution (including minimum own funds requirements as specified in Article 92 of Regulation (EU) 575/2013 and additional own funds requirements applied pursuant to Article 104(1)(a) of Directive 2013/36/EU.

In line with the objective of the recovery process and the flexibility given to the institution to act independently when breaching indicators, regulatory capital indicators should be set at a level higher than those that will allow supervisory intervention.

Generally, capital indicators should be calibrated above the combined capital buffer requirement. Where an institution calibrates its capital indicators within the buffers, it should clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been totally or partially used.

The thresholds for indicators related to the requirements set out in Articles 45c and 45d of Directive 2014/59/EU (minimum requirement for own funds and eligible liabilities – MREL) and Article 92a or 92b of Regulation (EU) No 575/2013 (TLAC), expressed as percentages of the total risk exposure amount (TREA) and total exposure measure (TEM), should be aligned with the calibration of the regulatory capital recovery plan indicators and they should be set at a level above the one allowing the resolution authority’s intervention in accordance with Article 16a of Directive 2014/59/EU [as introduced by Directive (EU) 2019/879 (opens EUR-Lex in a new tab)] and Article 128 of Directive 2013/36/EU [as amended by Directive (EU) 2019/878 (opens EUR-Lex in a new tab)]. The threshold should be generally calibrated by the institution above the combined buffer requirement when considered in addition to (i) the TLAC minimum requirement and (ii) the final MREL or the binding intermediate target levels of MREL (if different) expressed as percentages of TREA. The institution should also take into account any additional element considered relevant when determining those requirements, including a subordination requirement, as applicable. If an institution should decide to calibrate indicators related to MREL and TLAC within the buffers, it needs to clearly demonstrate in its recovery plan that its recovery options can be implemented in a situation where the buffers have been totally or partially used.

The indicator threshold should take into account the maturity profile of eligible liabilities and the institution’s ability to roll them over. For groups with an MPE resolution strategy, where the prudential and resolution scopes might differ, the institution should calibrate the consolidated level MREL/TLAC indicators for each of the resolution entities/groups.

The threshold calibration for MREL should be agreed by the competent authority in consultation with the resolution authority when making their assessment of the recovery plan. Upon being notified by the institution of a breach of the MREL indicator, the competent authority should inform the resolution authority and cooperate with it considering the importance of MREL to the resolution objectives under Article 31 of Directive 2014/59/EU.

Liquidity indicators should be able to inform an institution of the potential for or an actual deterioration of the capacity of the institution to meet its current and foreseen liquidity and funding needs.

The institution's liquidity indicators should refer to both the short-term and long-term liquidity and funding needs of the institution and capture the institution’s dependence on wholesale markets and retail deposits, distinguishing among key currencies where relevant.

The liquidity indicators should be integrated with the strategies, policies, processes and systems developed by each institution pursuant to Article 86 of Directive 2013/36/EU and its existing risk management framework.

The liquidity indicators should also cover other potential liquidity and funding needs, such as the intra-group funding exposures and those stemming from off-balance-sheet structures.

The thresholds for liquidity indicators should be calibrated by the institution at adequate levels in order to be able to inform the institution of potential and/or actual risks of not complying with those minimum requirements (including additional liquidity requirements pursuant to Article 105 of Directive 2013/36/EU, if applicable).

The thresholds for indicators based on regulatory liquidity requirements (LCR and NSFR indicators) should therefore be calibrated above the minimum requirements of 100%.

To calibrate the thresholds of the liquidity position, the institution should consider liquidity metrics used for internal monitoring, reflecting its own assumptions on the liquidity that could realistically be derived from sources not taken into account in the regulatory requirements. For this, the institution could consider the amounts of the counterbalancing capacity (CBC), other liquidity sources (e.g. deposits with other credit institutions) and any other relevant adjustments. When establishing forward-looking indicators, the institution should assess which maturity to consider, according to the institution’s risk profile, and then take into account the estimated inflows and outflows.

Profitability indicators should capture any institution’s income-related aspect that could lead to a rapid deterioration in the institution’s financial position through lowered retained earnings (or losses) impacting on the own funds of the institution.

This category should include recovery plan indicators referring to operational risk-related losses which may have a significant impact on the profit and loss statement, including but not limited to conduct-related issues, external and internal fraud and/or other events.

Asset quality indicators should measure and monitor the asset quality evolution of the institution. More specifically, they should indicate when asset quality deterioration could lead to the point at which the institution should consider taking an action described in the recovery plan.

The asset quality indicators may include both a stock and a flow ratio of non-performing exposures in order to capture their level and dynamics.

The asset quality indicators should cover aspects such as off-balance-sheet exposures and the impact of non-performing loans on the asset quality.

Market-based indicators aim to capture the expectations from market participants of a rapidly deteriorating financial condition of the institution that could potentially lead to disruptions in access to funding and capital markets. In accordance with this objective, the framework of qualitative and quantitative indicators should refer to the following types of indicators:

Macroeconomic indicators aim to capture signals of deterioration in the economic conditions in which the institution operates, or of concentrations of exposures or funding.

The macroeconomic indicators should be based on metrics that influence the performance of the institution in specific geographical areas or business sectors that are relevant for the institution.

The macroeconomic indicators should include the following typologies: