Capital planning and other supervisory measures to address capital adequacy in stressed conditions
Capital planning
When the quantitative outcomes of the stress tests referred to in Section 7.7.1 indicate that, under the given stress scenarios, an institution will not be able to meet the applicable capital requirements, competent authorities should require the institution to submit a credible capital plan that addresses the risk of not meeting its applicable capital requirements.
To determine the credibility of the capital plan, the competent authority should consider, as appropriate:
whether the capital plan covers the entire assumed stress testing time horizon;
whether the capital plan puts forward a set of credible mitigating and management actions, restricting dividend payments, etc.;
whether the institution is willing and able to take such actions in order to address the breaches of the applicable capital requirements in the system-wide stress tests;
whether those mitigating and management actions are subject to any legal or reputational constraints, for instance due to contrary or conflicting former public announcements (e.g. on dividend policies, business plans and risk appetite);
the probability that mitigating and management action would enable the institution to fully meet its applicable capital requirements within an appropriate timeframe; and
whether the proposed actions are broadly in line with macroeconomic considerations and with known future regulatory changes affecting an institution within the scope and timeline of the assumed adverse scenarios;
the range of recovery options and their analysis as set out in the institution’s recovery plan.
When assessing capital plans, the competent authority should, where appropriate, following an effective dialogue with the institution, require the institution to make changes to those plans as appropriate, including to the proposed management actions, or require institutions to take additional mitigating actions that would become relevant given the scenarios and current macroeconomic conditions.
Competent authorities should expect institutions to implement the revised capital plan, including further changes made based on the results of the supervisory assessment of and dialogue with the institution.
Additional supervisory measures
In particular, where the quantitative outcomes of the stress tests indicate that the institution is likely to breach its applicable capital requirements under the adverse scenario within the following 12 months, the competent authorities should, where appropriate, treat such information as one of the possible circumstances within the meaning of Article 102(1)(b) of Directive 2013/36/EU. In such cases, the competent authorities should apply appropriate measures in accordance with Article 104(1) of Directive 2013/36/EU aimed at ensuring sufficient levels of own funds. In particular, when such measures relate to capital, competent authorities should in particular consider one or both of the following, as defined in Article 104(1)(a) and (f):