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German regulator wants resolution plans for all big banks by 2018-end


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German regulator wants resolution plans for all big banks by 2018-end

Germany's financial market supervisor, Bafin, aims to set up resolution plans for most of the country's big and systemically important banks by the end of the year, Executive Director Thorsten Pötzsch said March 29.

Bafin is working with the European Single Resolution Board to complete the resolution plans for all of the nearly 1,500 German banks by the end of 2020. The regulators are looking to simplify resolution rules for smaller banks, which are also more likely to go through insolvency proceedings first rather than be resolved, Pötzsch said in an interview with Börsen-Zeitung.

When devising the plans, Bafin will access the resolvability of each bank and may request changes to the structure or the business model of individual institutions in order to remove challenges to a future resolution, according to Pötzsch. Generally speaking, a bank is easier to resolve if its business units are not too interlinked, he said.

"A bank should be set up in a way that allows the separation and continuation of operations of various critical units in case this is necessary for financial stability reasons. It is also important that banks are able to provide data necessary for their resolution on an ad-hoc basis," he said.

He declined to comment on the resolvability status of troubled Deutsche Bank AG, which continues to lose market value amid a management conflict that may end with a dismissal of CEO John Cryan.

When deciding whether a bank should be resolved — either continue to operate while being restructured, or go into insolvency, which would discontinue operations and declare the bank in default — Bafin's plans for smaller banks typically do not include resolution as an option. They are more straightforward and the requirements are simpler than for larger institutions, according to Pötzsch. Also, some of the smaller lenders that are part of an association or a cooperative could be resolved internally by that group.

A recent example is Dero Bank AG, which entered insolvency proceedings after Bafin froze its operations earlier this year. The regulator said at the time that it does not consider the bank as systemically important and a threat to financial stability.