The Principles of Banking, 2nd Edition

CHAPTER 21Recovery Planning and Resolution Planning

Abstract

Recovery planning and resolution planning are regulatory requirements that follow Basel Committee guidance. We introduce the key elements of recovery planning, which may be viewed as an extension of the ICAAP and ILAAP processes under more severe stressed conditions, and the key requirements of resolution planning.

RECOVERY PLANNING AND RESOLUTION PLANNING¹

In this chapter, we will examine the Recovery and Resolution Planning (RRP) requirements that have been established by global regulators since the 2008 financial crisis.

The purpose of RRP is to establish a global framework to deal effectively with banks that are on the brink of failure or have reached the point of non-viability. It is a mechanism that evolved from the financial crisis, which highlighted how difficult in a time of stress it was to work through a series of initiatives that could result in the credit institution recovering from the stress or resolving it in a timely fashion. In essence it is targeted to avoid “too big to fail” bank bail-outs.

RRP is mainly aimed at large banks and larger investment firms that are subject to the Capital Requirements Regime (CRR) in Europe and the Dodd–Frank Act in the US and where failure can have a significant impact on the domestic or the global economy, but in some jurisdictions smaller institutions are also in scope. In the UK, for instance, all banks are required to submit a recovery plan.

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