## cr1704 - EXECUTIVE SUMMARY

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### Background and Context
- Since the 2010 IMF FSAP update, Finland’s Contingency Planning and Crisis Management (CPCM) framework, including bank recovery and resolution, has improved.
- Banking Union introduced:
  - the Single Supervisory Mechanism (SSM),
  - the Single Resolution Mechanism (SRM),
  - ECB supervision over systemic banks,
  - subjection of all banks to recovery and resolution planning.
- EU-wide systemic risk monitoring through the European Systemic Risk Board (ESRB) complements national arrangements.
- Finland enacted new legislation and established a national resolution authority; it also revised its deposit insurance system.
- Ongoing “branchification” of Nordea Bank creates a systemic branch in Finland and poses major CPCM challenges:
  - After branchification, Finnish authorities would have a consultative role in resolution planning and decision-making while decisions could be driven by Swedish policy choices.
  - Authorities need a crisis strategy for Nordea’s Finnish branch based on the Swedish resolution plan and an alternative if that plan cannot be executed.
  - Consider assisting Swedish authorities (for example, through a swap agreement to provide the Swedish central bank with euro liquidity for emergency lending).

### Strong CPCM Foundations
- Cooperative culture among financial oversight agencies.
- Functional separation of potentially conflicting CPCM responsibilities: supervision, resolution, and emergency liquidity support.
- Clear separation of functions supports crisis preparedness and execution.
- Strong tradition of testing system-wide operational risks (e.g., FATO2015).

### Gaps and Operational Risks
- New EU-aligned CPCM framework is largely untested and requires further investments to ensure operational capability to rapidly deploy recovery and resolution tools.
- Establishing and maintaining the framework requires additional resources for sustainable staffing levels to accommodate inclusive and consultative EU processes.
- Finnish agencies have undergone resource rationalization even as fee revenues of supervisory and resolution authorities are expected to decrease substantially.
- National responsibilities for crisis preparedness and management (including communication planning and regular financial crisis simulation exercises) should be clearly assigned.
- Legal and operational frameworks need strengthening to:
  - provide legal protection for agencies’ officials, staff, and agents,
  - protect the central bank’s balance sheet against potential exposures due to emergency liquidity assistance (ELA).

### Cross-Border and Banking Union Challenges
- Cross-border arrangements need clarification to effectively support Finland’s CPCM framework.
- SRM decision-making involves many national and European officials and may take up to five days, which may delay European-level decision-making.
- Responsibility—and possibly the role of the ECB and the Single Resolution Board (SRB)—to actively oversee collective crisis preparedness and management at the Banking Union level should be defined.
- Nordic linkages and the fact that Banking Union cross-border arrangements do not apply in four out of five Nordic countries mean CPCM cooperation among these countries should be revamped.
- Legal and operational clarification needed to ensure effective application of deposit insurance and liquidity support in resolution situations.
- In the medium term, Finland would benefit from a completed Banking Union, including:
  - a common SRM-wide deposit insurance scheme,
  - permanent, common back-stop funding arrangements for the EU Single Resolution Fund (SRF).

### Recommendations on Contingency Planning and Crisis Management (selected from Table 1)
- Investing in the Finnish CPCM Capacity
  - 1. Ensure adequate and sustainable financial and human resources for all financial oversight agencies (MoF; ¶25). Time: I, C
  - 2. Strengthen the legal and operational framework for legal protection of officials, staff, and agents of all financial oversight agencies (MoF/FFSA/FSA/BoF; ¶26). Time: NT
  - 3. Formalize inter-agency cooperation on crisis preparedness and management at the national level, possibly through an expanded mandate for the FFSA Advisory Council (MoF; ¶27). Time: I
  - 4. Under the oversight of the FFSA Advisory Council, ensure agency-specific and national financial crisis planning, including a national crisis management communication plan and regular single- and multi-agency crisis simulation exercises (MoF/FFSA/FSA/BoF; ¶28). Time: I, C
  - 5. Review the Emergency Powers Act against the BRRD/FFSA (MoF; ¶29). Time: MT
  - 6. Expedite resolution planning for Finnish (systemic) financial institutions (SRB/FFSA; ¶30). Time: I
  - 7. Commit publicly to seven-day payouts to depositors by 2018 (FFSA; ¶31). Time: NT
  - 8. Introduce an indemnification arrangement for ELA losses if incurred by the BoF (MoF; ¶32). Time: NT
  - 9. Ensure that the existing bankruptcy, liquidation, and restructuring legislation is consistent with the bank resolution regime; if needed, introduce a bank-specific insolvency regime, including a clarified creditor hierarchy to complement the bank resolution regime (MoF; ¶33). Time: NT
- Hosting Significant Branches
  - 10. Strengthen the position of host country authorities in resolution planning and decision-making for significant branches in their jurisdiction (SSM/SRM; ¶34-35). Time: NT
  - 11. Adopt crisis strategies for Nordea’s Finnish branch (MoF/FFSA/FSA/BoF; ¶37). Time: I, C
- Clarifying Cross-Border CPCM Arrangement
  - 12. Allow for accelerated SRM decision-making (at the least for exceptional cases) (SRM; ¶38). Time: NT
  - 13. Define the responsibility to actively oversee collective crisis preparedness and management at the Banking Union level; clarify the ECB/SRB’s role in this regard (SRM/SSM; ¶39). Time: MT
  - 14. Seek to revamp CPCM cooperation among Nordic and Baltic countries, including close cooperation on systemic branches and regular crisis simulations exercises (MoF/FFSA/FSA/BoF; ¶36, ¶40). Time: I, C
  - 15. Develop a more effective use of deposit insurance to fund resolution tools (EU-wide; ¶41). Time: I
  - 16. Define strategies for liquidity assistance to banks in resolution (SRM/MoF/BoF; ¶42). Time: NT
  - 17. Implement an SRM-wide deposit insurance scheme (SRM; ¶43). Time: MT
  - 18. Establish standing, joint public back-stop funding arrangements for the SRF (SRM; ¶44). Time: MT
  - 19. When the Eurosystem ELA arrangements are next reviewed, reconsider the transparency policy to allow for a longer reporting lag (ECB; ¶45). Time: MT

### Clarification requested regarding BRRD and pari passu treatment
- Clarification item: "Clarify that the BRRD allows for departure from pari passu treatment of creditors with respect to all resolution tools (SRM; ¶46)."
- Highlights need to ensure SRM implementation and guidance communicate that BRRD permits departures from strict pari passu treatment across resolution tools where applicable.

### RRP Staffing (Box 1) — key staffing facts and recommendations
- FSA RRP staffing:
  - ISD’s Financial Sector Division has allocated 2 full-time equivalents (FTEs) for recovery planning (jointly with PSD supervisors).
- FFSA staffing:
  - Staff stands at 12.5 FTEs.
  - Allocation: management: 1 FTE; resolution planning: 6 FTEs; crisis management and resolution: 1 FTE; financial stability fund: 1 FTE; administrative support: 3.5 FTEs.
  - Temporarily, 2 FTEs will be recruited in 2016.
- MoF staffing:
  - After making staff available to the FFSA, MoF has 8 FTEs—down from 11—available for the Financial Markets Department unit concerned with this task.
- Staffing and funding pressures:
  - Implementing the new RRP framework and establishing resolution functions require additional resources.
  - Participation in the SSM and SRM increases domestic staffing needs.
- Projected revenue impact from Nordea branchification:
  - FSA and FFSA fee revenues would decrease by 29 percent and 53 percent, respectively, following branchification of Nordea.
- Recommendations for crisis preparedness and management (national level):
  - Formally assign responsibility for crisis preparedness and management at the national level (revamp FFSA Advisory Council mandate by government decree).
  - Develop agency-specific and national CPCM plans: update BoF and FSA manuals for ELA and bank failure responses; FFSA preparedness project; MoF crisis management plan including communications.
  - Crisis Simulation Exercises (CSEs): regular single-agency and multi-agency CSEs, including cross-border counterparts; build on FATO2015 and industry participation.
  - Bring forward the introduction of a seven-day depositor payout period; FFSA and industry to introduce a single customer view in 2017 enabling a FFSA commitment to seven-day payouts by 2018.
- DGS facts:
  - Current payout obligation: compensate eligible depositors within 20 working days.
  - Future schedule: 15 days on January 1, 2019; 7 days on January 1, 2020.
  - VTS Fund holds roughly €1 billion.
  - Over a decade, annual installments of €60 million will be transferred from the VTS Fund to a public DGF administered by the FFSA.
  - DGF target level is 0.8 percent of covered deposits.
  - Together, the DGF and VTS Fund stand at 1.4 percent of covered deposits.
  - After Nordea branchification, deposit guarantee responsibilities for Finnish Nordea depositors will shift to Sweden and the coverage ratio will rise to 1.9 percent.
- Protecting the BoF balance sheet from ELA exposures — recommended measures:
  - Give BoF’s ELA policies an explicit statutory basis and possibly a cap on total outstanding ELA.
  - Stipulate in the BoF Act that a shortfall of capital should be promptly covered by the state with transfer of cash or marketable government securities.
  - Conclude an agreement between the state and the BoF to promptly indemnify the BoF for losses from ELA operations; alternatively, provide an ongoing statutory government guarantee for ELA operations.

### SRB Decision Making (Box 2) — structure, limits, and policy issues
- SRB bodies and composition:
  - Executive session: prepares and approves resolution plans, determines MREL requirements, adopts resolution schemes for banks under direct responsibility; composition: chair, four permanent members, and a representative from the NRA in the member state concerned.
  - Plenary session: primarily decides on use of the SRF and can decide on resolution schemes under specific circumstances; composition: chair, four full-time members, and one member appointed by the NRA from each participating state (in total 24 members).
- Limits to SRB independence:
  - Delegation limits and requirement for European Commission endorsement of discretionary aspects of resolution schemes.
- Implementation is decentralized: NRAs implement SRB decisions in accordance with national legislation.
- Key findings and recommendations:
  - DGS and least-cost interpretation: strict interpretation of least-cost criteria could prevent DGS from funding resolutions in many circumstances; recommendation to reconsider strict interpretation to allow DGS to disburse greater funds up front if estimated eventual net cost is lower than liquidation costs.
  - Liquidity support in resolution: resolution planning needs liquidity and collateral management strategies; BRRD does not assume ELA availability; central bank solvency judgments could be linked to credible recapitalization plans.
  - EDIS: EC proposed EDIS to be implemented by 2024 via staged mutualization; some member states oppose the proposal.
  - SRF backstop: permanent, common public back-stop funding arrangements for the SRF should be agreed; target operational by end of transition period in 2023; could take form of an ESM credit line or collective member state facility reimbursed via ex post levies.
  - ELA transparency: reconsider Eurosystem ELA transparency policy to allow a longer reporting lag and more flexibility to protect financial stability.
  - Departures from pari passu principle: EU and Finnish legislation allow departures from pari passu only explicitly for bail-in; Key Attributes prescribe broader flexibility; recommendation: EU rule changes needed to address gap for sale of business and bridge institution tools.

### Recovery, Resolution, and Triggering Resolution (RRP and Appendix IV)
- Recovery and resolution planning:
  - Recovery plans: OP Group finalized; Nordea Bank Finland and Danske group-level plans to be finalized in 2016; Kuntarahoitus planning scheduled for 2017; recovery planning for 9 LSIs and 11 investment firms concluded.
  - FSA applied stricter recovery planning than ECB recommendation: only one bank given simplified recovery planning.
  - Resolution planning: 2015 transitional resolution plan for OP Group; SRB scheduled resolution planning for Kuntarahoitus in 2017; FFSA started planning for four LSIs and is considering simplified planning for investment firms and some LSIs.
  - Timelines: JST must communicate recommendations within six months of submission; institution has two months, extendable by one month, to submit revised plan addressing deficiencies.
- Triggering conditions in SRM/Finland:
  - Condition (1): the bank is failing or likely to fail — determination by ECB after consultation with SRB; SRB may act if ECB fails to act within three days of SRB notice.
  - Condition (2): no reasonable prospect that private-sector or early intervention measures would prevent failure — determined by SRB in close cooperation with ECB; ECB may inform SRB that condition (2) is met.
  - Condition (3): a resolution measure is necessary and in the public interest — determined by SRB.
- Adoption and endorsement of resolution scheme:
  - SRB adopts a resolution scheme and immediately transmits it to the EC.
  - EC has 24 hours to endorse or object to discretionary aspects; within 12 hours EC may propose Council involvement on public interest or SRF amount; Council must act within 12 hours.
  - Resolution scheme enters into force 24 hours from transmission if no objection by Council or EC.
  - EC must approve use of the SRF or any state aid; NRAs implement schemes after EC approval.
  - SRB must modify the scheme within eight hours if EC or Council objections require changes; SRB instructs the FFSA on the resolution scheme.

*Source: EXECUTIVE SUMMARY and excerpts from cr1704*

### EXECUTIVE SUMMARY __________________________________________________________________________ 5

### cr1704 - EXECUTIVE SUMMARY

### Background and Context
- Since the 2010 IMF FSAP update, Finland’s Contingency Planning and Crisis Management (CPCM) framework, including bank recovery and resolution, has improved.
- The establishment of the Banking Union introduced:
  - the Single Supervisory Mechanism (SSM),
  - the Single Resolution Mechanism (SRM),
  - ECB supervision over systemic banks,
  - subjection of all banks to recovery and resolution planning.
- EU-wide systemic risk monitoring through the European Systemic Risk Board (ESRB) complements national arrangements.
- Finland enacted new legislation and established a national resolution authority; it also revised its deposit insurance system.
- The ongoing “branchification” of Nordea Bank (legal restructuring with parent company incorporated outside the Banking Union) creates a systemic branch in Finland and poses major CPCM challenges:
  - After branchification, Finnish authorities would have a consultative role in resolution planning and decision-making while decisions could be driven by Swedish policy choices.
  - Authorities need a crisis strategy for Nordea’s Finnish branch based on the Swedish resolution plan and an alternative if that plan cannot be executed.
  - Consideration should be given to assisting Swedish authorities (for example, through a swap agreement to provide the Swedish central bank with euro liquidity for emergency lending).

### Strong CPCM Foundations
- Finland’s CPCM framework rests on a strong foundation:
  - Cooperative culture among financial oversight agencies.
  - Functional separation of potentially conflicting CPCM responsibilities: supervision, resolution, and emergency liquidity support.
  - Clear separation of functions supports crisis preparedness and execution.
  - Strong tradition of testing system-wide operational risks.

### Gaps and Operational Risks
- The new CPCM framework is untested and requires further investments to ensure operational capability to rapidly deploy recovery and resolution tools.
- Establishing and maintaining the new EU-aligned framework requires additional resources for sustainable staffing levels to accommodate inclusive and consultative EU processes.
- Finnish agencies have undergone resource rationalization to increase efficiency, even as fee revenues of supervisory and resolution authorities are expected to decrease substantially.
- At the national level, responsibilities for overseeing national crisis preparedness and management (including communication planning and regular financial crisis simulation exercises) should be clearly assigned.
- Legal and operational frameworks need strengthening to:
  - provide legal protection for agencies’ officials, staff, and agents,
  - protect the central bank’s balance sheet against potential exposures due to emergency liquidity assistance (ELA).

### Cross-Border and Banking Union Challenges
- Cross-border arrangements need clarification to effectively support Finland’s CPCM framework.
- SRM decision-making involves many national and European officials and may take up to five days, which may delay European-level decision-making.
- The responsibility—and possibly the role of the ECB and the Single Resolution Board (SRB)—to actively oversee collective crisis preparedness and management at the Banking Union level should be defined.
- Nordic linkages and the fact that Banking Union cross-border arrangements do not apply in four out of five Nordic countries mean CPCM cooperation among these countries should be revamped.
- Legal and operational clarification is needed to ensure effective application of deposit insurance and liquidity support in resolution situations.
- In the medium term, Finland would benefit from a completed Banking Union, including:
  - a common SRM-wide deposit insurance scheme,
  - permanent, common back-stop funding arrangements for the EU Single Resolution Fund (SRF).

### Recommendations on Contingency Planning and Crisis Management (selected from Table 1)
- Investing in the Finnish CPCM Capacity
  - 1. Ensure adequate and sustainable financial and human resources for all financial oversight agencies (MoF; ¶25). Time: I, C
  - 2. Strengthen the legal and operational framework for legal protection of officials, staff, and agents of all financial oversight agencies (MoF/FFSA/FSA/BoF; ¶26). Time: NT
  - 3. Formalize inter-agency cooperation on crisis preparedness and management at the national level, possibly through an expanded mandate for the FFSA Advisory Council (MoF; ¶27). Time: I
  - 4. Under the oversight of the FFSA Advisory Council, ensure agency-specific and national financial crisis planning, including a national crisis management communication plan and regular single- and multi-agency crisis simulation exercises (MoF/FFSA/FSA/BoF; ¶28). Time: I, C
  - 5. Review the Emergency Powers Act against the BRRD/FFSA (MoF; ¶29). Time: MT
  - 6. Expedite resolution planning for Finnish (systemic) financial institutions (SRB/FFSA; ¶30). Time: I
  - 7. Commit publicly to seven-day payouts to depositors by 2018 (FFSA; ¶31). Time: NT
  - 8. Introduce an indemnification arrangement for ELA losses if incurred by the BoF (MoF; ¶32). Time: NT
  - 9. Ensure that the existing bankruptcy, liquidation, and restructuring legislation is consistent with the bank resolution regime; if needed, introduce a bank-specific insolvency regime, including a clarified creditor hierarchy to complement the bank resolution regime (MoF; ¶33). Time: NT
- Hosting Significant Branches
  - 10. Strengthen the position of host country authorities in resolution planning and decision-making for significant branches in their jurisdiction (SSM/SRM; ¶34-35). Time: NT
  - 11. Adopt crisis strategies for Nordea’s Finnish branch (MoF/FFSA/FSA/BoF; ¶37). Time: I, C
- Clarifying Cross-Border CPCM Arrangement
  - 12. Allow for accelerated SRM decision-making (at the least for exceptional cases) (SRM; ¶38). Time: NT
  - 13. Define the responsibility to actively oversee collective crisis preparedness and management at the Banking Union level; clarify the ECB/SRB’s role in this regard (SRM/SSM; ¶39). Time: MT
  - 14. Seek to revamp CPCM cooperation among Nordic and Baltic countries, including close cooperation on systemic branches and regular crisis simulations exercises (MoF/FFSA/FSA/BoF; ¶36, ¶40). Time: I, C
  - 15. Develop a more effective use of deposit insurance to fund resolution tools (EU-wide; ¶41). Time: I
  - 16. Define strategies for liquidity assistance to banks in resolution (SRM/MoF/BoF; ¶42). Time: NT
  - 17. Implement an SRM-wide deposit insurance scheme (SRM; ¶43). Time: MT
  - 18. Establish standing, joint public back-stop funding arrangements for the SRF (SRM; ¶44). Time: MT
  - 19. When the Eurosystem ELA arrangements are next reviewed, reconsider the transparency policy to allow for a longer reporting lag (ECB; ¶45). Time: MT

*Source: EXECUTIVE SUMMARY, cr1704*

### 20. Clarify that the BRRD allows for departure from pari passu treatment of creditors with respect

### 20. Clarify that the BRRD allows for departure from pari passu treatment of creditors with respect to all resolution tools (SRM; ¶46)

### Background and context
- Contingency planning and crisis management are essential to respond to future events within authorities’ mandate. Key elements: tools to monitor developments, awareness of policy and operational choices, advance decisions on use of powers, procedures to coordinate with domestic and foreign agencies, and financial crisis-simulation exercises.
- The 2010 Financial System Stability Assessment (FSSA) Update for Finland identified challenges in: (1) identification and monitoring of systemic risk, (2) the bank resolution framework (domestic and cross-border), and (3) operation of the deposit insurance fund.
- The global financial crisis prompted EU-wide changes: CRD IV/CRR (implementing Basel III), the Bank Recovery and Resolution Directive (BRRD), and EBA guidelines and RTS. The BRRD is closely aligned with the Financial Stability Board’s Key Attributes.
- Finnish legislative changes implementing the EU framework included amendments to the Credit Institutions Act (610/2014), a new Resolution Act (1194/2014), establishment of the FFSA with the FFSA Act (1195/2014), and operationalization of the FFSA in May 2015, which also took over management of the deposit guarantee scheme and fund (DGS; DGF).

### Scope and approach of the note
- The note reviews Finnish CPCM arrangements—including bank resolution—against Finland-specific challenges and international best practices (Key Attributes, BCP, IADI Principles).
- Recommendations may require advocacy within the Banking Union where changes are beyond national unilateral action.

### Financial oversight architecture — key institutional roles
- Domestic agencies forming the safety net: Financial Supervisory Authority (FSA, Finanssivalvonta); Bank of Finland (BoF, Suomen Pankki); Financial Stability Authority (FFSA, Rahoitusvakausvirasto); Ministry of Finance (MoF).
- European authorities with jurisdiction: ESCB, ECB, European Commission (EC), Single Resolution Board (SRB), ESRB, ESM.
- FSA: prudential authority for the Finnish financial sector; resolution authority for nonbank financial institutions; NCA within ESFS and SSM.
- FFSA: Finnish resolution authority for banks and investment firms; manages the Financial Stability Fund (FSF) comprising the national resolution fund and the DGF; NRA within the SRM.
- BoF: monetary authority, provider of systemic liquidity, and, subject to ECB procedures and EU rules, provider of emergency liquidity assistance (ELA).
- SSM and SRM: SSM (ECB) responsible for prudential supervision (SI/LSI classification). SRM (SRB) responsible for resolution within Banking Union; SRB decision-making is centralized but execution is decentralized to NRAs.

### Strong CPCM foundations in Finland
- Banking Union introduced RRP for all banks and EU-wide systemic risk monitoring via ESRB and SI supervision by ECB.
- SSM classifies institutions as SI or LSI. ECB directly supervises four Finnish SIs: Nordea Bank Finland, OP Group, Danske Bank, and Kuntarahoitus. Nine remaining banks are LSIs directly supervised by FSA under ECB oversight.
- Finnish oversight agencies maintain close, collaborative culture and functional separation of supervision, resolution, and LOLR functions—assigned to different agencies to avoid conflicts of interest.
- Finland practices sector-wide operational risk testing (e.g., FATO2015 with 60 government agencies and financial institutions) and intends to repeat simulations more frequently than every five years.

### Investing in Finnish CPCM capacity — findings and pressures
- Staffing and funding needs:
  - Implementing the new RRP framework and establishing resolution functions require additional resources.
  - Participation in the SSM and SRM is resource-intensive, increasing domestic staffing needs to engage in EU arrangements and represent Finnish perspectives.
- Specific projected revenue impact from Nordea branchification:
  - FSA and FFSA fee revenues would decrease by 29 percent and 53 percent, respectively, following branchification of Nordea.
- MoF is leading a working group studying alternative fee structures for FSA and FFSA; one option is to assess levies from systemic branches of EU banks, similar to EEA and third-country branches.
- Legal protection for agency officials:
  - Finnish law currently provides that the state is ultimately liable for damages suffered by third parties and may have recourse against officials if damages are caused by their actions or omissions.
  - Finnish financial sector legislation does not include clauses that expressly provide legal protection to officials, staff, and agents of the agencies for actions and omissions made in good faith in the exercise of official duties—as required by international standards.
  - Recommendation: determine and define the Finnish equivalent of “good faith” in legislation and establish operational arrangements to make this protection effective.

### Clarification request regarding BRRD and pari passu treatment
- Item for clarification recorded in the source:
  - "Clarify that the BRRD allows for departure from pari passu treatment of creditors with respect to all resolution tools (SRM; ¶46)."
- This point highlights the need to ensure, within SRM implementation and related guidance, that stakeholders understand the BRRD permits departures from strict pari passu treatment across resolution tools where applicable.

*Source: IMF staff note on Finland CPCM framework and Banking Union implementation (excerpts).*

### Box 1. RRP Staffing

### Box 1. RRP Staffing

### RRP and agency staffing
- FSA—Recovery planning and early intervention measures is assigned to the Institutional Supervision Department (ISD) and the Prudential Supervision Department (PSD), respectively.
- ISD’s Financial Sector Division has allocated 2 full-time equivalents (FTEs) for recovery planning (jointly with PSD supervisors).
- FFSA—Staff stands at 12.5 FTEs and is recruited from the public and private sector. Staff allocation:
  - management: 1 FTE
  - resolution planning: 6 FTEs
  - crisis management and resolution: 1 FTE
  - financial stability fund: 1 FTE
  - administrative support: 3.5 FTEs
  - Temporarily, 2 FTEs will be recruited in 2016.
- MoF—Unit for Banking and Finance within the Financial Markets Department holds primary responsibility for the financial sector. After making staff available to the FFSA, the MoF has 8 FTEs—down from 11—available to concern itself with this task, which also includes CPCM.

### Crisis preparedness and management (national level)
- Recommendation: Formally assign responsibility for crisis preparedness and management at the national level.
- Observation: A 2007 interagency MoU on “financial system crisis management” envisaged a Steering Group on Stability Cooperation, but it has become a macroprudential cooperation forum and does not address crisis preparedness and management; the MoU predates major institutional and regulatory changes.
- Recommendation: Task the existing FFSA Advisory Council with national crisis preparedness and management by revamping its mandate and specifying it by government decree; the decree could complement an update of the MoU.
- Under the revamped FFSA Advisory Council, develop agency-specific and national CPCM plans comprising three prongs:
  - Agency-Specific Plans:
    - BoF and the FSA have manuals for ELA and bank failure responses that predate the BRRD and should be updated.
    - The FFSA has started its own preparedness project.
    - The MoF should have a crisis management plan guiding crisis communications and use of its powers, including those guided by the BRRD.
  - National CPCM Plan:
    - Ensure cooperation and communication to strengthen agencies’ collective strategy and one-voice messaging in crises.
    - Ensure officials use the same facts and assumptions through rapid access to reliable information and timely assessments.
    - Focus specifically on communication: stay on message, explain unconventional actions, and neutralize speculations.
  - Crisis Simulation Exercises (CSEs):
    - Each agency should regularly test and update its crisis plans.
    - Single-agency CSEs should be complemented by regular multi-agency CSEs, including cross-border counterparts.
    - Build on FATO2015; include industry participants; CSEs can be comprehensive or focused (e.g., information sharing, decision-making).
- Note on business continuity: CPCM plans would exist alongside business continuity plans implemented and tested within MoF, FSA, and BoF. FFSA is preparing its own business continuity plan. MoF’s plan was tested during a national government preparedness test; the next test is scheduled for 2016.
- Crisis communications building blocks include:
  - (1) high-level objectives, including clarification of authorities’ mandate;
  - (2) key policy objectives, including assessment of the crisis and focus on stability;
  - (3) target groups, including the general public, depositors, market-participants, and financial press;
  - (4) tools, including conventional media, social media, and news releases.

### Legal framework review: Emergency Powers Act (EPA)
- Recommendation: Review the Emergency Powers Act (EPA, 1080/1991) against changes under the BRRD.
- Observation: EPA grants extraordinary powers aimed at economic stability (advised to include financial stability) and specifies powers such as capital and payment controls, financial sector regulations, and expanding agencies’ enforcement powers.
- The authorities have yet to assess whether the EPA would allow the FFSA to be granted expanded powers and whether EPA powers should be updated to accommodate the BRRD.

### Recovery planning and resolution planning progress
- Recovery Planning:
  - OP Group’s recovery plan has been finalized.
  - Group level recovery plans for Nordea Bank Finland and Danske will be finalized in 2016.
  - Plan for Kuntarahoitus will start later (added to the SI list at a late stage).
  - Recovery planning for the 9 LSIs and the 11 investment firms has been concluded.
  - The FSA has not opted for simplified recovery planning for institutions under its supervision (chosen to be stricter than the ECB recommendation); it applies simplified recovery planning to only one bank and decided that one investment firm (together with an insurance company constituting a financial conglomerate) should have a full-fledged recovery plan.
  - Assessment: Quality of plans was good for the first round; deficiencies found in some cases in scenario definitions, indicators, triggers, and identification of critical functions.
  - Both SIs and LSIs are subject to annual updates.
- Resolution Planning:
  - In 2015, a transitional resolution plan was developed for OP Group; FFSA is preparing an updated plan for 2016.
  - Swedish and Danish NRAs are taking the lead in resolution planning for Nordea and Danske, respectively.
  - SRB has scheduled resolution planning for Kuntarahoitus in 2017.
  - FFSA has started resolution planning for four LSIs and is considering simplified resolution planning for investment firms and some LSIs.
- Appendix III discusses RRP.

### Depositor payout period and DGS arrangements
- Current payout obligation: DGS must compensate eligible depositors within 20 working days of a credit institution failure.
- Future schedule in legislation:
  - 15 days on January 1, 2019
  - 7 days on January 1, 2020
- Recommendation: Bring forward the introduction of a seven-day depositor payout period.
- Operational note: FFSA and the industry will introduce a single customer view in 2017; this would allow the FFSA to commit to making payouts within seven days (with minor exceptions for uncertain cases) by 2018, which is recommended to enhance depositor confidence. The commitment could be part of a public awareness campaign on the overhauled DGS.
- DGS system changes:
  - In 2015, Finnish DGS changed from a private “VTS Fund” to a combined public–private system.
  - VTS Fund holds roughly €1 billion.
  - Over a decade, annual installments of €60 million will be transferred from the VTS Fund to a public DGF administered by the FFSA.
  - DGF target level is 0.8 percent of covered deposits.
  - Together, the DGF and VTS Fund stand at 1.4 percent of covered deposits.
  - After Nordea branchification, deposit guarantee responsibilities for Finnish Nordea depositors will shift to Sweden and the coverage ratio will rise to 1.9 percent.
- Note: DGS will have continued access to the VTS Fund to supplement its own fund when needed for payouts.

### Protecting the BoF balance sheet from ELA exposures
- Context:
  - BoF has exclusive authority and bears operational and financial risk for ELA to Finnish banks, subject to ECB procedures and EU treaty prohibitions on monetary financing and state aid.
  - When projected ELA to a bank or group exceeds €2 billion, the ECB Governing Council may object to, limit, or condition the ELA if it considers the ELA jeopardizes the Eurosystem mandate.
  - Unlike normal monetary policy operations where losses are shared proportionally to the capital key, BoF fully bears balance sheet risk for ELA.
  - Example risk: Irish crisis—ELA peaked at around €80 billion while collateral quality diminished.
  - BoF Act: when BoF reserve fund is depleted, subsequent profits would be used first to cover legacy ELA losses, potentially leaving BoF with negative capital for a prolonged period and threatening autonomy.
- Recommended measures to protect BoF balance sheet:
  - Give BoF’s ELA policies an explicit statutory basis, possibly together with a cap on total outstanding ELA to prevent adverse fiscal consequences; maintain discretionary nature and BoF autonomy.
  - Stipulate in the BoF Act that a shortfall of capital should be promptly covered by the state with transfer of either cash or marketable government securities.
  - Conclude an agreement between the state and the BoF to promptly indemnify the latter for losses stemming from ELA operations; alternatively, give BoF an ongoing statutory government guarantee for ELA operations, possibly with express understanding that any indemnification should give due consideration to fiscal consequences.
- Operational guidance: Regardless of balance sheet protection, BoF should continue to appropriately value collateral and assess the ELA recipient’s solvency.
- References cited by the source for further context and precedent include ECB Opinion CON/2008/42, the 2014 ECB Convergence Report, and Article 9 of the Organic Law of the National Bank of Belgium.

### Corporate insolvency regime and bank resolution
- Observation: Corporate restructuring, bankruptcy, and liquidation laws were changed only minimally when implementing the BRRD; these laws also apply to banks.
- Action taken: FFSA hired an insolvency expert from the Finnish Bankruptcy Ombudsman to review these laws and assess impediments for bank resolution and liquidation.
- Recommendation: Ensure corporate legislation does not hinder effective and timely bank resolution; if impediments are severe, consider excluding banks from said laws and introducing a bank-specific insolvency regime that allows flexibility, including departure from equal treatment of creditors of the same class.

### Hosting systemic branches and Nordic cross-border issues (Nordea branchification)
- Observation: Ongoing branchification of Nordea Bank Finland will leave Finland with a “systemic” branch; Banking Union provisions do not fully contemplate systemic branches with parent companies incorporated outside the Banking Union.
- Concern: BRRD assigns the host NRA of a systemic branch (and the ECB) only an advisory role; a Finnish branch designated as significant (roughly 30 percent of deposits, exceeding the 2-percent threshold) would leave Banking Union authorities with a weaker position regarding resolution planning and measures compared to host NRAs of subsidiaries.
- Limitation of BRRD:
  - Group-level resolution authorities must take into account host countries’ financial stability.
  - Host NRAs of significant branches are consulted and members of resolution colleges but are not decision-makers regarding resolution plans and measures.
  - Resolution colleges are facilitative, not decision-making; joint decisions are taken by home and host authorities of the subsidiaries concerned.
  - The EBA can play a mediation role, but the BRRD contains no assurance that will necessarily overcome conflicting positions (e.g., a home NRA’s crisis-management bias).
- Recommendations and contingency planning:
  - Pursue an agreement between Finnish, Banking Union, and Swedish authorities clarifying cooperation mechanisms after branchification, covering information exchange, cooperation, regular high-level and technical meetings, and possibly giving host authorities a role closer to that for subsidiaries.
  - Define how Swedish authorities will take Finland’s financial stability concerns into account.
  - Consider assistance measures such as a central bank swap to provide the Swedish central bank with euro liquidity in case the branch needs euro ELA.
  - Banking Union and Finnish authorities should plan for distress in Nordea’s Finnish branch based primarily on the Swedish resolution plan for Nordea, prepare alternative plans if resolution decisions deviate from the plan, and subject these plans to national CSEs; formal resolution plans should be tested bilaterally with Swedish authorities and Nordic-Baltic counterparts.

### Cross-border CPCM arrangements and systemic crisis oversight
- Triggering resolution for SIs is complex; three conditions must be met:
  - (1) the financial institution is failing or likely to fail;
  - (2) no reasonable prospect exists for alternative private-sector measures or supervisory action to prevent failure;
  - (3) a resolution measure is necessary and in the public interest.
- Allocation of responsibilities:
  - Primary responsibility for (1) vested in the ECB; for (2) and (3) vested in the SRB.
  - When all conditions are met, SRB prepares a resolution “scheme,” which must be validated by the EC within 24 hours; the EC may in exceptional cases involve the European Council in the first 12 hours for SRF-related actions or to challenge the public interest determination.
  - The resolution scheme enters into force 24 hours from transmission by the SRB if no objection by the Council or EC.
  - NRAs can implement the resolution scheme only after the EC adopts a positive or conditional decision on compatibility with internal market and state aid rules.
- Recommendation: Define responsibility to actively oversee collective crisis preparedness and management at the Banking Union level and clarify SRB and ECB roles in managing systemic crises in single or multiple Eurozone countries.
- Nordic cooperation:
  - Given Nordic interlinkages and that Finland is the only Nordic Banking Union member, close CPCM cooperation among Nordic countries should compensate for Banking Union arrangements which do not apply in four out of five Nordic countries.
  - The existing Nordic-Baltic Stability Group (NBSG) is not very active but could be a useful platform if revamped.
  - A revamped NBSG, supported by MoUs between Finnish agencies and Nordic-Baltic counterparts, could oversee cross-border crisis preparedness and management and organize regular cross-border CSEs.

*Source: Box 1. RRP Staffing, cr1704 - Box 1. RRP Staffing*

### Box 2. SRB Decision Making

### Box 2. SRB Decision Making

### SRB decision-making bodies and composition
- Executive session:
  - Prepares and approves resolution plans, determines MREL requirements, and adopts resolution schemes for banks under its direct responsibility.
  - Composition: the chair, four permanent members, and when exercising responsibilities in relation to a bank established in a participating member state, a representative from the NRA in that member state.
  - The chair and the full time members of the executive board are chosen on the basis of an open selection procedure involving the EC, the EU Parliament and the Council.
- Plenary session:
  - Primarily decides on the use of the SRF and can, under specific circumstances, decide on the resolution scheme and on the Board’s internal structures, budget, and work program.
  - Composition: a chair, the four other full-time members, and a member appointed by the NRA from each participating state (in total 24 members).

### Limits to SRB independence and implementation
- The SRB’s ability to act independently is limited because:
  - Delegation of authority to a European Union agency not established by treaty cannot confer a wide degree of discretion.
  - Discretionary aspects of the SRB’s actions—in particular, the adoption of a resolution scheme—are subject to endorsement by the European Commission.
- Implementation of SRB decisions is decentralized:
  - Each NRA, although subject to SRB instructions, must make its own decisions in accordance with national legislation.

### Findings, outstanding issues, and policy recommendations
- Deposit Guarantee Schemes (DGS) and least-cost interpretation:
  - Strict interpretation of the least-cost criteria would leave the DGS unable to fund resolutions in many circumstances.
  - Such an interpretation (including a strict reading of Article 109 of the BRRD) would prevent the DGS from providing upfront support greater than its estimated cost (net of recoveries in liquidation) without taking recoveries from resolution into account.
  - Recommendation: Reconsider this strict interpretation to allow the DGS to disburse greater funds up front in a resolution if the estimated eventual cost to the DGS, net of recoveries, would be lower than its estimated net liquidation costs.
  - Rationale: Without such flexibility the transfer powers may not work, especially in a precipitous failure or during a crisis when assets cannot be easily sold and cash needs to be injected to back deposits.
  - Status: This issue is awaiting clarification by the EBA as part of the single rulebook Q&A process.
- Liquidity support in resolution:
  - Resolution planning needs to specify liquidity and collateral management strategies to ensure the preferred resolution strategy will work.
  - Under the BRRD, resolution planning cannot assume that ELA will be available, but in practice bailed-in entities may need significant liquidity after a crisis, including access to ELA from central banks or liquidity from governments.
  - Both types of liquidity support are addressed in the 2013 European Commission Communication on state aid rules and financial support to banks in financial crisis.
  - Recommendation/observation: The SRB’s resolution planning manual would address liquidity; important flexibility could be created if the central bank can deem a bank solvent if it has a credible recapitalization plan foreseeing that capital requirements are met in the near term.
- European Deposit Insurance Scheme (EDIS):
  - The Banking Union lacks a common SRM-wide deposit insurance scheme.
  - In 2015, the EC proposed to implement an EDIS for Banking Union members by 2024.
  - Proposal mechanism: national DGSs mutualized in three stages—(1) reinsurance stage providing support with national DGS contributions to another DGS that has exhausted its own funds; (2) three years later, co-insurance with progressively increasing EDIS contribution; (3) full mutualization in 2024.
  - Note: The proposal is opposed by some member states.
- SRF backstop funding arrangements:
  - Permanent, common public back-stop funding arrangements for the SRF should be agreed upon.
  - Member states are negotiating a common backstop to the SRF, to be fully mutualized and operational at the latest by the end of the transition period in 2023.
  - The backstop could take the form of an ESM credit line (or from member states collectively). Any borrowings would be reimbursed from ex post levies on credit institutions.
- ELA transparency and disclosure practices:
  - Current disclosure practices (NCBs publishing monthly balance sheets with a month’s delay) could allow significant ELA operations to be inferred, encouraging unwanted financial speculation.
  - Revealing information shortly after ELA disbursal could undermine its effectiveness.
  - Recommendation: When the Eurosystem ELA arrangements are next reviewed, the transparency policy should be reconsidered to allow for a longer reporting lag and more flexibility in content and timing of disclosure for financial stability reasons.
- Departures from pari passu principle:
  - EU and Finnish legislation allows departures from the principle of pari passu only explicitly for the bail-in tool.
  - The Key Attributes prescribe flexibility to depart from pari passu to contain systemic impact or maximize value for all creditors, but the BRRD does not explicitly provide this flexibility for the sale of business and bridge institution tools (e.g., transfer of senior unsecured bonds but not derivative liabilities).
  - Legal risk: The lack of express authority may raise legal challenges invoking fundamental (property) rights and could risk non-recognition or non-enforcement by other member states under the Winding-Up Directive.
  - Recommendation: Pertinent changes will need to be made in EU rules to address this gap.

### Governance structures of Finnish financial agencies (key institutional features)
- Finnish Financial Supervisory Authority (FSA):
  - Parliamentary Supervisory Council (PSC):
    - Oversees the FSA’s overall expediency and efficiency; appoints and dismisses the FSA’s Board members, its director general, and their deputies; determines principles underlying terms of employment and oversees disclosure compliance; confirms FSA’s rules of procedure.
    - Composition: nine members elected by parliament; PSC elects a chairman and deputy chairman from among its members—all nine PSC members are parliamentarians.
  - Board:
    - Manages the FSA’s activities; determines overall strategy; sets operational objectives; adopts prudential regulations and guidelines; oversees cooperation between safety net participants and with AML/CFT authorities.
    - Composition: five members, each appointed to a three-year term. Three members and their deputies are appointed by the PSC on proposals from the Ministry of Finance, the Ministry of Social Affairs and Health, and the BOF; two other members are appointed directly by the PSC. The PSC designates the chair and vice chair.
  - Director General (FSA-DG):
    - Chief executive officer; manages activities; ensures efficient execution of tasks; appoints and dismisses FIN–FSA’s staff.
    - The FSA-DG is appointed for a five-year term and can be dismissed by the PSC pursuant to a Board proposal; the PSC designates a Deputy FSA-DG from among FSA staff.
    - When matters could have significant effects on financial stability, the Board may consider for decision such matters before the FSA-DG does so (includes (de)licensing non-banks, restriction of business, imposition of additional capital requirements).
- Bank of Finland (BoF):
  - Parliamentary Supervisory Council (PSC):
    - Supervises BoF’s administration and activities, including financial oversight; appointment and dismissal of its Board members, deputy Board chair, and directors—the president appoints/dismisses the Board chair.
  - Board:
    - Responsible for BoF’s administration and executing tasks not vested in the PSC.
    - Composition: the chair/governor and a maximum of five other members appointed for seven- and five-year terms, respectively. The current Board has three members, including the governor.
- Financial Stability Fund / FFSA:
  - Director General (FFSA-DG):
    - Chief executive officer; takes all FFSA decisions unless stated otherwise in the FFSA Act.
    - Proposed by the Minister of Finance and appointed for a maximum of two consecutive five-year terms by the government; the government can dismiss the FFSA-DG; the Deputy FFSA-DG is appointed by the minister.
  - Fund Board (Board of Directors of the Financial Stability Fund):
    - Determines FSF’s risk management framework and investment principles; prepares the FSF investment plan.
    - Composition: a chairperson, a vice-chair, and three to five members, all appointed by the Minister of Finance for three-year terms; at least two members are appointed on a proposal by the financial industry. Currently, the Fund Board has five members.
  - Parliamentary role:
    - Parliament would decide on the use of extraordinary public financial support; if resolution requires borrowing, the FFSA would propose so to the MoF; subject to government approval, the Fund is authorized to borrow within limits set by parliament.
  - Advisory Council:
    - Tasked with ensuring cooperation and communication among its members (not yet fully defined).
    - Composition: representatives from the FFSA, FSA, MoF, and BoF—put forward by their respective institutions and appointed by the minister for three-year terms.

### Early intervention powers (summary)
- Early intervention framework objectives:
  - Establish a logical progression of increasingly stringent powers to address issues from noncompliance to insolvency without an inflexible mechanical sequence.
  - International principles prescribe components: (1) clear triggers for timely exercise of powers; (2) broad range of effective powers to restore weak banks; (3) a clear path to orderly resolution when the institution appears unlikely to return to viability.
- Competent authority powers:
  - May direct a bank to implement a recovery plan, change business strategy, or implement recovery plan elements where prudential requirements (CRD IV or the CRR) are not met or likely to be breached.
  - May remove or replace members of senior management or appoint a ‘temporary administrator’ to carry out management functions when removal/replacement is insufficient.
- Resolution authority powers:
  - May write down or convert capital instruments (CET1, additional Tier 1 or Tier 2) independently of resolution measures when: (1) the competent authority determines the bank/group will no longer be viable unless the power is exercised; or (2) extraordinary public financial support (other than support available to mitigate a systemic crisis) is required by the bank or entity in the group.
  - Write-down and conversion may be used in combination with a resolution action when remaining conditions for entry into resolution have been met.

### Recovery and Resolution Planning in the Banking Union
- Framework and objectives:
  - RRPs (recovery and resolution plans) are a key component of contingency planning and crisis management under the BRRD and the FSB’s Key Attributes.
  - Recovery Plan: developed by the institution to identify options for restoring finances and viability.
  - Resolution Plan: prepared by the resolution authority based on information provided by the institution to facilitate orderly resolution protecting systemically important functions without severe disruptions or taxpayer losses.
  - Authorities may execute alternative strategies deviating from RRPs per the Key Attributes.
- Scope and responsibilities:
  - All banks in the Banking Union, no matter their size, are subject to recovery planning requirements.
  - Recovery plans are prepared by banks, assessed by the competent supervisory authority (e.g., the FSA for Finnish LSIs and the ECB for Finnish SIs), and shared with the relevant resolution authority.
  - Resolution authorities are empowered to identify actions in recovery plans that could adversely affect resolvability and make recommendations to the supervisory authority.
- Timelines and procedures for Finnish SIs:
  - For the four Finnish SIs, the JSTs, in cooperation with the ECB’s Crisis Management Division and the FSA, assess recovery plans and coordinate with supervisory colleges and the EBA where necessary.
  - Within six months from submission to authorities, the JST must communicate any recommendations or changes to address material deficiencies or impediments (a “material deficiency notice”).
  - The institution then has two months, extendable by one month, to submit a revised plan addressing the deficiencies.
- Resolution planning in the Banking Union:
  - Resolution planning entails formulating a Preferred Resolution Strategy (PRS) and conducting the Resolvability Assessment Process (RAP); this is documented in a resolution plan for each institution.
  - While resolution authorities may ask banks to help draft and update resolution plans, the ultimate responsibility rests with the authorities; the ECB and the NCAs are consulted during preparation.

*Source: Box 2. SRB Decision Making — cr1704.*

### Appendix IV: Triggering Resolution in SRM/Finland

### Appendix IV: Triggering Resolution in SRM/Finland

### Triggering conditions and decision-makers
- The ECB, after consultation with the SRB, determines that the bank is failing or is likely to fail, and informs the EC and the SRB.
- The SRB may make that determination if the ECB fails to act within three days of notice by the SRB of its intention to make such determination.
- The SRB, in close cooperation with the ECB, determines that, with regard for timing and other relevant circumstances, there is no reasonable prospect that any private sector measure, or early intervention measure, would prevent the failure of the institution.
- The ECB may also inform the SRB that this second condition for resolution is met.

### Adoption, transmission, and endorsement of a resolution scheme
- The SRB adopts a resolution scheme once it determines that a resolution measure is necessary and in the public interest, and, immediately after adoption, transmits it to the EC.
- Within 24 hours after transmission, the EC either endorses the resolution scheme, or objects to it with regard to the discretionary aspects of the resolution scheme in the cases not covered below (i.e., European Council decisions).
- Within 12 hours after transmission, the EC may propose to the Council to object to the resolution scheme on the grounds that it does not fulfill the public interest criterion necessary for resolution—the Council must do so within 12 hours.
- Alternatively, the EC can propose that the Council approve or submit within 12 hours a reasoned objection to a material modification of the amount of SRF monies provided for in the resolution scheme.
- If the Council objects to the resolution scheme on the grounds that it does not fulfill the requirement that resolution is in the public interest, the entity is orderly wound up in accordance with the applicable national insolvency law.

### Conditions for SRF and state aid approval
- The EC must approve the use of the SRF or any other state aid.
- The resolution scheme may enter into force only if no objection has been expressed by the Council, or by the EC within 24 hours after transmission.

### Modification and implementation of the resolution scheme
- Within eight hours, the SRB modifies the resolution scheme in accordance with the reasons expressed by the EC, in its aforementioned objection, or by the Council, in its approval of the modification proposed by the EC.
- The SRB instructs the FFSA on the resolution scheme.

*Source: IMF Staff, 2016.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1704.pdf_