## 10.      The SRM should ensure the feasibility of resolution strategies for groups with D-SIBs.

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### Key points and context
- The FSAP team supports the single market while being mindful of national financial stability concerns during transition to a full banking union.
- Governance arrangements in the banking union may diminish host authorities’ influence.
- Consistent with FSB and EBA guidance, internal MREL targets should support the group resolution strategy and enable recapitalization of material entities.
- The FSAP team acknowledges challenges in systemic circumstances for resolution of LSIs with insufficient MREL.

### Home–Host balance in recovery and resolution (Box 2)
- EU law mandates due consideration for national interests in recovery and resolution (planning) decisions.
- BRRD (Art. 7) recovery-planning interests:
  - The group plan must identify measures at the subsidiary level.
  - Competent authorities may require subsidiaries to submit individual plans.
  - The group plan must aim to stabilize the group or any institution of the group, and restore the financial position of the group, while considering the financial position of other group entities.
  - The group plan must identify impediments for recovery within the group, including at the level of individual entities covered by the plan, and whether there are substantial practical or legal impediments to the prompt transfer of own funds or the repayment of liabilities or assets within the group.
- SRM Regulation resolution-planning interests:
  - impact of any decision or (in)action on the financial stability, fiscal resources, the economy, the financing arrangements, the DIS or the investor compensation scheme of any member state where a group operates (Art. 6.3);
  - balancing the various member states’ interests and avoiding unfairly prejudicing or protecting the interests of a member state (Art. 6.3);
  - minimizing a negative impact for any part of a group which is subject to a resolution (Art. 6.3);
  - group resolution plans are not to have a disproportionate impact on any member state (Art. 8.11);
  - group resolvability assumed if it can be wound up or resolved while avoiding significant adverse consequences for national financial systems in which group entities are established (Art. 10.4);
  - the use of resolution tools and powers must minimize the impact on the group (entities), and minimize the adverse effect on, particularly, national financial systems in which the group operates (Art. 15.2).
- Where the Extended Executive Session of the SRB cannot reach a unanimous decision, the SRB Chair and the four other full-time SRB Members take a decision without a vote by the host authorities.

### Actions to strengthen operational capacity — A. Recovery and Early Intervention
- All banks incorporated in Belgium have recovery plans and the NBB’s early intervention framework is based on EU and banking union requirements.
- The NBB follows EBA guidelines on the SREP and triggers for use of EIMs; SREP outcomes determine EIMs, which the BRRD and the EU capital requirements directive and regulation have strengthened.
- For LSIs, the NBB should ensure a smooth and decisive transition from early intervention to resolution, with ample time for resolution preparation.
  - The NBB Resolution Unit has access to regular prudential reporting; the NBB Resolution Board includes the director for banking supervision.
  - Supervisors are required to inform the NBB Resolution Board at an early stage about pertinent developments (including when EIM conditions are met).
  - Recommendation: establish a protocol between supervisory units and the Resolution Unit detailing information-exchange format and substance, and linking timing to specific supervisory measures, significant financial deterioration, and a RAS 3 (‘medium risk’).

### Actions to strengthen operational capacity — B. Official Financial Support
- The NBB should further strengthen its ELA framework.
  - Subject to ECB procedures and EU treaty prohibitions on monetary financing and state aid, the NBB has exclusive authority to extend ELA to Belgian banks.
  - The NBB has an ELA Handbook documenting ELA procedures, including specific solvency criteria, collateral qualifications, collateral valuation methodologies, and contractual documentation.
  - A service level agreement prescribes that DM should be informed about all changes in solvency, capital, and liquidity “at an early stage” (for SIs, at the latest when a bank has a RAS of 4 (‘high risk’); and for LSIs, at the latest when the NBB Board is informed on pertinent developments).
  - To support early horizon scanning and prepositioning of collateral, DM should be informed about RAS 3 SIs and LSIs.
- Considering elimination of statutory ELA loss indemnification for the NBB:
  - Until end-2016, NBB losses on ELA operations enjoyed full statutory government indemnity; this was ended to prevent automatic state aid rules application.
  - The State may grant ad hoc guarantees for specific ELA transactions; EU state aid rules would apply on an ad hoc basis.
  - Discussed practice: obligation to recapitalize the NBB if the total of its statutory capital and reserve falls below a specific percentage of the NBB’s monetary liabilities.
  - The NBB noted specific shareholding characteristics, including activist minority shareholders and high litigation risks, to consider in designing arrangements.
- Crisis tools available to Belgium:
  - Four mandatory resolution tools: bail-in, sale of business, bridge institution, and asset management vehicle.
  - Two optional tools under BRRD: public equity support and temporary public ownership (Belgium has legislated these; triggered by Royal Decree on a government proposal).
  - In an (imminent) systemic crisis, government could adopt supplementary prudential rules and put in place systems of guarantees on a recommendation from the NBB.
  - The MoF has developed a detailed flowchart to navigate decision-making for these tools and guarantees.

### Actions to strengthen operational capacity — C. Resolution and Liquidation
- Belgium has introduced tools to address shortcomings in the EU framework:
  - The NBB intends to operationalize resolution tools and planning primarily building on EU frameworks (SRB crisis management and bail-in manuals, SSM joint supervisory standards, and EBA guidelines).
  - The NBB is prioritizing a resolution handbook and national bail-in policies, awaiting SRB decisions for consistency.
- MREL and bail-in:
  - In the first half of 2018, the SRB will adopt binding consolidated MREL targets for the majority of banking union SIs.
  - NBB MREL decisions for the LSIs are subject to SRB oversight.
  - The NBB’s position: MREL calibration and quality should consider the mandatory 8 percent bail-in requirement and all BRRD exclusions for senior unsecured creditors; MREL should be available at the entry point of the resolution strategy on a solo basis.
  - The banking union framework provides a transition period to build-up MREL, but not for mandatory bail-in; during transition, some banks may lack sufficient MREL, which could prevent a smooth resolution or force liquidation.
  - A recent amendment to the NBB Organic Law authorizes the NBB to subject individual banks or categories of banks to minimum funding requirements resembling MREL for financial stability purposes.
  - A senior non-preferred tranche of liabilities has been introduced in the Banking Act to better align creditor hierarchy in insolvency and resolution.
- Priorities and timing:
  - The NBB should prioritize resolution planning for the two LSIs holding the highest percentage of insured deposits.
  - SRB resolution planning for Belgian SIs, or euro area SIs with Belgian subsidiaries, is progressing but none has a resolution plan beyond ‘Stage 3.’
  - The NBB Resolution Board has decided that 10 LSIs with individual total assets below EUR 4 billion will be subject to simplified resolution planning; later it will decide on the remaining 5 credit institution LSIs.
  - In Q2 2018, the NBB aims to finalize its general approach to LSI resolution planning; then it will start developing the first LSI resolution plans.
  - The insured deposits held by two LSIs exceed the current funds of the Belgian DIS; the NBB should prioritize their resolution planning to ensure cost-effective resolution.
- Judicial review and insolvency:
  - Possible delays in resolution due to mandatory ex ante judicial review of all NBB disposition decisions should be prevented.
  - Ex ante review takes at minimum 7 business days; competent court is the Brussels Commercial Court.
  - The law precludes appeal or third-party objection against the court’s decision in an ex ante review, but ex post appeal is possible at the Brussels Appeals Court, which can award monetary damages.
  - Mission recommendation: eliminate ex ante judicial review—or at minimum expedite judicial review consistent with the speed required for effective resolution.
  - Banks can be subject to court-based insolvency procedures, albeit with NBB approval: banks can only be declared insolvent by the court at the request of or with the NBB’s agreement as the resolution authority; insolvency procedures can only be initiated with the NBB’s consent as the supervisory authority.
  - Transfer powers exist for the insolvency administrator but are unlikely to be used because insolvency would involve liquidation and pay-out to depositors, narrowing the opportunity window—particularly if the payout period is shortened to seven days as proposed.

### Actions to strengthen operational capacity — D. Deposit Protection and Payout
- The Guarantee Fund should be further strengthened.
  - In 2016, the Guarantee Fund dealt relatively well with the Optima Bank insolvency: within three weeks—then applicable payout period—close to 60 percent of insured deposits (and 40 percent of depositors) was paid out; within three months this was close to 90 and 80 percent, respectively. In total, around EUR 45 million was paid out to close to 3000 depositors.
  - The DIS’ target level is 0.8 percent of insured deposits; end-October 2017 it stood at 1.18 percent.
  - At 1.18 percent, the DIS would be unable to cover payouts to the two LSIs with the highest percentage of insured deposits; it could only cover simultaneously two of three smallest mid-size LSIs.
  - At 1.8 percent, the coverage would include the largest two mid-size LSIs together.
  - FSAP recommendation: continue collecting contributions beyond the target level; suggest the Guarantee Fund adopt an indicative higher target level commensurate with its obligations.
  - Both the DIS and national resolution funds are notional: industry-paid fees are transferred to the MoF; the Guarantee Fund can draw on the MoF up to the accumulated amounts.
    - Recommendation: segregate DIS and national resolution funds from government funds to ensure consistency with the IADI Principles and ready access in times of fiscal constraints.
    - The DIS should have standing and readily available credit lines with the MoF and/or the NBB over and above the accumulated amounts.
  - Recommendation: shorten the pay-out period to seven days by 2019 instead of the currently envisaged end-2023 schedule.
  - The FSAP team welcomed ongoing discussions on an information-sharing agreement between the Guarantee Fund and the NBB.

### Actions to strengthen operational capacity — E. Crisis Preparedness and Management
- The NBB Resolution Board should more proactively oversee crisis preparedness.
  - RRP contributes to Belgium’s crisis preparedness.
  - The NBB Resolution Board brings together pertinent authorities.
  - The NBB recovery and resolution risk team is a platform for internal cooperation and information sharing between the Resolution Unit, the Prudential Policy and Financial Stability Unit, the legal services, and the supervisory units for banks, insurers, and financial market infrastructures.
  - Some procedures (such as insolvency and withdrawal of license) have been documented; the NBB intends to develop a resolution handbook when the SRB finalizes its handbook.
  - Recommendation: mandate a committee of the NBB Resolution Board to proactively oversee national financial crisis preparedness (including regular intra- and inter-agency contingency planning and financial CSEs); this committee should not include the Board’s independent and judiciary members.
  - The committee would serve as a platform for crisis cooperation while agencies continue to autonomously exercise respective mandates.

### Actions to strengthen operational capacity — F. Staffing Capacity
- Resolution planning requires NBB capacity.
  - The NBB established a Resolution Unit with 9.5 full-time equivalents (FTE)—1.5 FTE of which is vacant and will be recruited as soon as possible.
  - About 4.5 FTE is used for resolution planning for 15 credit-institution LSIs, and participation in 18 SRB resolution teams, eight resolution colleges, and one crisis management group; the Resolution Unit is also involved in international and EU policy fora.
  - The Resolution Unit staffing is below average in comparison to peer countries; it has engaged an external consultancy firm to help develop resolution plans.
  - For supervision and recovery planning, the NBB requires less staffing: 0.25 for LSI and 0.75 FTE for SI recovery planning through the JSTs—it also participates in three Indian supervisory colleges with Belgian LSIs.
  - The Guarantee Fund participates as observer in six resolution colleges.
- Recommendations on staffing and training:
  - The NBB Resolution Unit should be flexibly staffed and adequately trained in time-tested and cost-effective resolution tools.
  - In normal times the Resolution Unit would require a relatively small number of permanent staff and could be expanded with internal and external resources as needed.
  - Establish an explicit framework authorizing the Resolution Unit to have access to relevant NBB staff and other resources with a high degree of discretion to ensure operational autonomy and functional effectiveness.
  - Pertinent staff should continue to be trained in preparing and implementing the sale of business and bridge bank tools—sale of business has proven highly cost-effective; bridge bank is essential in system-wide crises when no buyers are available.
  - The Resolution Unit will need experts in valuations, law, IT, and security.

*Source: cr1868 - 10.      The SRM should ensure the feasibility of resolution strategies for groups with D-SIBs.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Key findings on the Belgian financial safety net and crisis management
- Actions in Belgium and at the European Union (EU) level have improved the Belgian financial safety net and crisis management arrangements, but Belgium still faces challenges and further actions are needed to improve its operational capacity.
- At the EU level, the establishment of the single supervisory mechanism (SSM) and the single resolution mechanism (SRM) are important improvements.
- The National Bank of Belgium (NBB) continues to play a critical role in maintaining financial stability in Belgium through participation in the SSM and the SRM, and through national roles for deposit insurance and emergency liquidity assistance (ELA) for all banks, and recovery and resolution (planning) for certain banks.
- The SRM should ensure the feasibility of resolution strategies for groups with domestic systemically important banks (D-SIBs) that execute national critical functions.
- Belgian authorities are concerned about consequences for foreign-owned D-SIBs in Belgium under their parent’s resolution strategy in the absence of sufficient loss-absorbing capacity at subsidiary level.
- The single point of entry (SPE) resolution strategy applies to these subsidiaries; smooth execution requires a mechanism to upstream losses and to downstream capital, which critically depends on the availability of sufficient subsidiary level loss-absorbing capacity.

### Transition from early intervention to resolution
- The NBB should ensure a smooth and decisive transition from early intervention to resolution for less significant institution (LSIs), with ample time for resolution preparation.
- All LSIs in Belgium have recovery plans and the NBB follows European Banking Authority (EBA) guidelines for the supervisory review and evaluation process (SREP) and triggers for using early intervention measures (EIMs).
- NBB supervisors are required to inform the NBB Resolution Unit when EIM conditions are met.
- To allow more advance resolution preparation, the Resolution Unit should be involved at an earlier stage when a bank has a medium (rather than having to wait for a high) risk assessment score (RAS) under the SREP methodology; a protocol should detail cooperation and information sharing between supervisory and resolution staff.

### Resolution planning status and related measures
- Resolution planning for significant institutions (SIs) is following the Single Resolution Board (SRB) timeline based on a five-stage planning procedure.
- No Belgian SI or subsidiary of euro area SIs have resolution plans beyond stage 3; by 2020, all SIs are scheduled to have stage-5 resolution plans.
- Resolution planning for LSIs will start in 2018.
- For its resolution handbook and bail-in policies, the NBB is awaiting pertinent SRB decisions.
- Belgium has adopted legislation authorizing a new macroprudential tool for setting minimum funding requirements for financial stability purposes and introduced a senior non-preferred tranche of liabilities in anticipation of forthcoming EU legislation.
- Considering that two LSIs hold insured deposits individually above the Belgian deposit insurance system’s (DIS) current funds, the NBB should prioritize their resolution planning.

### Deposit insurance and the Guarantee Fund
- The Guarantee Fund for Financial Services (Guarantee Fund) administers both the DIS and the national resolution fund; both are notional funds: fees collected from the industry for both are transferred to the government and the Guarantee Fund can draw on the Ministry of Finance (MoF) up to the amounts accumulated for both funds.
- Recommendation: these funds should be segregated from government funds to ensure consistency with international standards and ready access—also in times of fiscal constraints.
- The DIS should have standing credit lines with the MoF over and above the accumulated amounts.
- Currently, consistent with EU legislation, a seven-day pay-out period is envisaged in 2024; recommendation is to bring this forward to 2019 to increase depositor confidence.

### Government financial stabilization tools and optional resolution tools
- In times of crisis, Belgium can use government financial stabilization tools and a broad set of government guarantees.
- In addition to the four mandatory resolution tools (bail-in, sale of business, bridge institution, asset management vehicle), EU law allows two optional tools: public equity support and temporary public ownership. Belgium has legislated these tools and the government would decide on their use.
- The government is authorized to adopt supplementary prudential rules and put in place systems of guarantees in the (imminent) event of a systemic crisis.

### Operational shortcomings identified
- Prior judicial review: ex ante judicial review of all NBB disposition decisions takes at a minimum 7 business days. International standards require that ex ante judicial review of resolution measures not hamper decisive resolution measures; recommendation is to eliminate or expedite this review.
- Emergency liquidity assistance: The NBB ELA Handbook includes solvency criteria, collateral requirements, valuation methodologies, and contractual documentation. An agreement between pertinent NBB units complements the Handbook with information sharing modalities. Recommendation: information sharing should take place at an earlier stage for banks with a RAS of 3 to support early horizon scanning and prepositioning of collateral.
- Crisis preparedness: Recovery and resolution planning (RRP) will contribute to Belgium’s crisis preparedness. The NBB Resolution Board could serve as a platform for cooperation in case of a system-wide crisis while member agencies autonomously exercise their powers. Recommendation: the Board should organize regular intra- and inter-agency financial crisis simulation exercises (CSEs) and more proactively oversee national financial crisis preparedness.
- Staffing: resolution will require a smaller number of permanent staff than supervision but should be expanded with internal and external resources as needed. Recommendation: expansion should be formalized in an explicit framework to ensure the Resolution Unit’s operational autonomy and functional effectiveness.

### Table 1 — Recommendations on Financial Safety Net and Crisis Management (selected, with timing and priority)
- Ensure the feasibility of resolution strategies for banking groups with systemically important subsidiaries. (SRM; ¶10) — MT; H
- Ensure a smooth and decisive transition from early intervention to resolution for LSIs, with ample time for resolution preparation. (NBB; ¶2) — I; H
- Strengthen the NBB ELA framework to support horizon scanning and prepositioning of collateral. (NBB; ¶13) — ST; M
- Prioritize resolution planning for the two LSIs holding the highest percentage of insured deposits. (NBB; ¶17) — I; H
- Eliminate or expedite ex ante judicial review of resolution measures to ensure decisive resolution. (MoF; ¶18) — I; H
- Segregate the Guarantee Fund from government funds to ensure ready access to deposit insurance and resolution funds. (MoF; ¶20) — ST; H
- Publicly commit to shortening the deposit pay-out period to seven days by 2019 to increase depositor confidence; establish credit lines with the MoF for the DIS. (MoF; ¶20) — I; H
- Mandate a committee of the NBB Resolution Board with proactively overseeing national financial crisis preparedness, including organizing regular intra- and inter-agency contingency planning and financial CSEs. (NBB; ¶21) — ST; M
- Flexibly staff the NBB Resolution Unit to ensure staffing capacity commensurate with fluctuating demands on its services. (NBB; ¶22) — C; M
- Adequately train pertinent staff in the use of the sale of business and bridge bank tools. (NBB/MoF; ¶23) — C; M

*Timing legend:* C = continuous; I = immediate (within one year); ST (short term) = 1–2 years; MT (medium term) = 3–5 years
*Priority legend:* H = high; M = medium; L = low

---

### Background (context and scope)
- Financial safety net: this note uses an expanded definition comprising (i) prudential supervision; (ii) deposit insurance; and (iii) ELA, and it also covers planning and execution of recovery and resolution measures.
- Crisis management: requires comprehensive tools and powers, sufficient funds, efficient procedures, monitoring tools, awareness of policy and operational choices, advance decisions on powers’ use, inter-agency cooperative arrangements, and financial CSEs to test contingency plans.
- Belgian arrangements include domestic bodies (NBB, Guarantee Fund, MoF) and EU-level bodies (ECB, European Commission, EU Council, SRB, European Systemic Risk Board, European Stability Mechanism, SSM, SRM).
- The 2013 FSAP recommended improvements including designating the NBB as resolution authority, strengthening inter-agency cooperation, mandating RRPs, introducing safeguards in official financial support, enhancing bank resolution and insolvency frameworks, and strengthening the DIS.
- This 2018 note summarizes findings of the mission undertaken in November 2017, informed by analysis of policy, operational and legal documents, responses to a questionnaire, and discussions with authorities.
- National authorities’ roles: NBB supervisory staff are part of ECB joint supervisory teams (JSTs) and serve as national sub-coordinator for Belgian SIs; NBB supervises Belgian LSIs and contributes to recovery planning for seven Belgian SIs and oversees recovery planning for 28 LSIs (the latter holding less than 10 percent of banking sector assets). NBB resolution staff is responsible for resolution planning for 15 credit institution LSIs and contributes to resolution planning for Belgian SIs in SRB internal resolution teams (IRTs); under SRB oversight, it is responsible for executing resolution measures against both SIs and LSIs.
- The NBB is solely responsible for implementing monetary policy in Belgium, in line with the ECB’s single monetary policy and decentralized implementation approach, and can provide ELA to individual Belgian banks subject to ECB procedures and EU prohibitions on monetary financing and state aid.
- The note focuses on the banking sector, which dominates the financial system and is primarily deposit funded.

### Sound foundations and critical challenges
- EU-level changes (BRRD, SSM, SRM) addressed several 2013 FSAP recommendations by subjecting all banks to RRP and streamlining cross-border cooperation.
- The Belgian authorities designated the NBB as the resolution authority for credit institutions and stockbroking firms; the NBB established an internal Resolution Board to ensure functional separation from the NBB Board; depositor preference and asset encumbrance indicators (AEIs) were introduced.

Box: Asset Encumbrance Indicators (AEIs)
- The Banking Act requires all banks to include AEIs in their recovery plans, calculated as: unencumbered assets / guaranteed deposits.
- AEIs include a progressive scale of early warning and recovery threshold values:
  - breach of early warning threshold: NBB informed; bank must identify cause of AEI decline and determine whether a recovery event is imminent and certain ‘business options’ in the recovery plan should be implemented
  - breach of recovery threshold: NBB informed; bank must initiate recovery plan activation and the NBB authorized to require implementation of recovery plan options
- Threshold values are bank specific to avoid penalizing highly retail deposit-funded banks:
  - 90 percent deposits → maximum AEI 111 percent (= 100/90)
  - 50 percent deposits → maximum AEI 200 percent (= 100/50)
- NBB requires both a ‘narrow’ and a ‘broad’ AEI:
  - narrow nominator = total assets -/- encumbered assets -/- non-marketable assets -/- contingent encumbrance
  - broad nominator = total assets -/- encumbered assets -/- non-marketable assets + assets encumbered by hedging + assets pledged for central bank borrowing
- Encumbered assets: EBA definition; non-marketable assets: non-performing loans, intangible assets, and derivatives; contingent encumbrance: assets that will become encumbered as bank becomes increasingly distressed.
- NBB analysis demonstrates that if the AEIs had been in place in 2007, they would have signaled the stress of the Belgian banks most adversely affected by the global financial crisis.

### Concern regarding D-SIBs and MREL
- Foreign-owned D-SIBs in Belgium are subsidiaries of euro area banks within SSM and SRM remits and are subject to group RRPs with an SPE resolution strategy.
- Smooth execution of SPE requires mechanisms to upstream losses and downstream capital, which depend on sufficient subsidiary level loss-absorbing capacity (MREL, which is subordinated to third-party claims on the subsidiary).
- By end-2017, the SRB will set binding consolidated MREL targets for the majority of its major or complex banking groups—subject to a maximum four-year transition period; in 2018, it intends to decide on internal MREL allocation within groups and on subsidiary-level targets, possibly also subject to a transitional period.
- Insufficiency of internal MREL would be exacerbated if D-SIBs held substantial liabilities issued by their parents, which could be bailed in; in the event of the parent’s failure, downstreaming of losses would defeat the SPE strategy and could require separate resolution of each group entity, with potentially large losses for the subsidiary’s creditors, higher costs for Belgium, and contagion effects.
- The SRB is expected to require external MREL to be subordinated up to a level of 12 percent of risk-weighted assets plus the combined buffer requirement for D-SIBs; the NBB noted such a level of subordination may not be sufficient to comply with the no-creditor-worse-off test for the bail-in tool, particularly on OpCos, considering mandatory and discretionary exclusions from bail-in.
- Insufficient MREL also poses challenges for the resolution of LSIs: for most LSIs, liquidation would be the preferred resolution strategy and their resolution plans would not require MREL beyond capital requirements. In systemic circumstances, however, resolution could be the preferred option to prevent contagion; at that time resolution would be difficult as MREL would be insufficient (based on the resolution plan), and would necessitate bailing in other liabilities (such as uninsured deposits), which would likely be less palatable.

*Source: IMF staff technical note summarizing the 2018 FSAP mission findings on Belgium’s financial safety net and crisis management arrangements.*

### 10.      The SRM should ensure the feasibility of resolution strategies for groups with D-SIBs.

### 10.      The SRM should ensure the feasibility of resolution strategies for groups with D-SIBs.

### Key points and context
- The FSAP team supports the single market while being mindful of national financial stability concerns during transition to a full banking union.
- Governance arrangements in the banking union may diminish host authorities’ influence.
- Consistent with FSB and EBA guidance, internal MREL targets should support the group resolution strategy and enable recapitalization of material entities.
- The FSAP team acknowledges challenges in systemic circumstances for resolution of LSIs with insufficient MREL.

### Home–Host balance in recovery and resolution (Box 2)
- EU law mandates due consideration for national interests in recovery and resolution (planning) decisions.
- BRRD (Art. 7) recovery-planning interests (planning is silent on recovery measures):
  - The group plan must identify measures at the subsidiary level.
  - Competent authorities may require subsidiaries to submit individual plans.
  - The group plan must aim to stabilize the group or any institution of the group, and restore the financial position of the group, while considering the financial position of other group entities.
  - The group plan must identify impediments for recovery within the group, including at the level of individual entities covered by the plan, and whether there are substantial practical or legal impediments to the prompt transfer of own funds or the repayment of liabilities or assets within the group.
- SRM Regulation resolution-planning interests (silent on recovery):
  - impact of any decision or (in)action on the financial stability, fiscal resources, the economy, the financing arrangements, the DIS or the investor compensation scheme of any member state where a group operates (Art. 6.3);
  - balancing the various member states’ interests and avoiding unfairly prejudicing or protecting the interests of a member state (Art. 6.3);
  - minimizing a negative impact for any part of a group which is subject to a resolution (Art. 6.3);
  - group resolution plans are not to have a disproportionate impact on any member state (Art. 8.11);
  - group resolvability assumed if it can be wound up or resolved while avoiding significant adverse consequences for national financial systems in which group entities are established (Art. 10.4);
  - the use of resolution tools and powers must minimize the impact on the group (entities), and minimize the adverse effect on, particularly, national financial systems in which the group operates (Art. 15.2).
- Where the Extended Executive Session of the SRB cannot reach a unanimous decision, the SRB Chair and the four other full-time SRB Members take a decision without a vote by the host authorities.

### Actions to strengthen operational capacity

H3: A. Recovery and Early Intervention
- All banks incorporated in Belgium have recovery plans and the NBB’s early intervention framework is based on EU and banking union requirements.
- The NBB follows EBA guidelines on the SREP and triggers for use of EIMs; SREP outcomes determine EIMs, which the BRRD and the EU capital requirements directive and regulation have strengthened.
- For LSIs, the NBB should ensure a smooth and decisive transition from early intervention to resolution, with ample time for resolution preparation.
  - The NBB Resolution Unit has access to regular prudential reporting; the NBB Resolution Board includes the director for banking supervision.
  - Supervisors are required to inform the NBB Resolution Board at an early stage about pertinent developments (including when EIM conditions are met).
  - Recommendation: establish a protocol between supervisory units and the Resolution Unit detailing information-exchange format and substance, and linking timing to specific supervisory measures, significant financial deterioration, and a RAS 3 (‘medium risk’).

H3: B. Official Financial Support
- The NBB should further strengthen its ELA framework.
  - Subject to ECB procedures and EU treaty prohibitions on monetary financing and state aid, the NBB has exclusive authority to extend ELA to Belgian banks.
  - The NBB has an ELA Handbook documenting ELA procedures, including specific solvency criteria, collateral qualifications, collateral valuation methodologies, and contractual documentation.
  - A service level agreement prescribes that DM should be informed about all changes in solvency, capital, and liquidity “at an early stage” (for SIs, at the latest when a bank has a RAS of 4 (‘high risk’); and for LSIs, at the latest when the NBB Board is informed on pertinent developments).
  - To support early horizon scanning and prepositioning of collateral, DM should be informed about RAS 3 SIs and LSIs.
- Considering elimination of statutory ELA loss indemnification for the NBB:
  - Until end-2016, NBB losses on ELA operations enjoyed full statutory government indemnity; this was ended to prevent automatic state aid rules application.
  - The State may grant ad hoc guarantees for specific ELA transactions; EU state aid rules would apply on an ad hoc basis.
  - Discussed practice: obligation to recapitalize the NBB if the total of its statutory capital and reserve falls below a specific percentage of the NBB’s monetary liabilities.
  - The NBB noted specific shareholding characteristics, including activist minority shareholders and high litigation risks, to consider in designing arrangements.
- Crisis tools available to Belgium:
  - Four mandatory resolution tools: bail-in, sale of business, bridge institution, and asset management vehicle.
  - Two optional tools under BRRD: public equity support and temporary public ownership (Belgium has legislated these; triggered by Royal Decree on a government proposal).
  - In an (imminent) systemic crisis, government could adopt supplementary prudential rules and put in place systems of guarantees on a recommendation from the NBB.
  - The MoF has developed a detailed flowchart to navigate decision-making for these tools and guarantees.

H3: C. Resolution and Liquidation
- Belgium has introduced tools to address shortcomings in the EU framework:
  - The NBB intends to operationalize resolution tools and planning primarily building on EU frameworks (SRB crisis management and bail-in manuals, SSM joint supervisory standards, and EBA guidelines).
  - The NBB is prioritizing a resolution handbook and national bail-in policies, awaiting SRB decisions for consistency.
- MREL and bail-in:
  - In the first half of 2018, the SRB will adopt binding consolidated MREL targets for the majority of banking union SIs.
  - NBB MREL decisions for the LSIs are subject to SRB oversight.
  - The NBB’s position: MREL calibration and quality should consider the mandatory 8 percent bail-in requirement and all BRRD exclusions for senior unsecured creditors; MREL should be available at the entry point of the resolution strategy on a solo basis.
  - The banking union framework provides a transition period to build-up MREL, but not for mandatory bail-in; during transition, some banks may lack sufficient MREL, which could prevent a smooth resolution or force liquidation.
  - A recent amendment to the NBB Organic Law authorizes the NBB to subject individual banks or categories of banks to minimum funding requirements resembling MREL for financial stability purposes.
  - A senior non-preferred tranche of liabilities has been introduced in the Banking Act to better align creditor hierarchy in insolvency and resolution.
- Priorities and timing:
  - The NBB should prioritize resolution planning for the two LSIs holding the highest percentage of insured deposits.
  - SRB resolution planning for Belgian SIs, or euro area SIs with Belgian subsidiaries, is progressing but none has a resolution plan beyond ‘Stage 3.’
  - The NBB Resolution Board has decided that 10 LSIs with individual total assets below EUR 4 billion will be subject to simplified resolution planning; later it will decide on the remaining 5 credit institution LSIs.
  - In Q2 2018, the NBB aims to finalize its general approach to LSI resolution planning; then it will start developing the first LSI resolution plans.
  - The insured deposits held by two LSIs exceed the current funds of the Belgian DIS; the NBB should prioritize their resolution planning to ensure cost-effective resolution.
- Judicial review and insolvency:
  - Possible delays in resolution due to mandatory ex ante judicial review of all NBB disposition decisions should be prevented.
  - Ex ante review takes at minimum seven business days; competent court is the Brussels Commercial Court.
  - The law precludes appeal or third-party objection against the court’s decision in an ex ante review, but ex post appeal is possible at the Brussels Appeals Court, which can award monetary damages.
  - Mission recommendation: eliminate ex ante judicial review—or at minimum expedite judicial review consistent with the speed required for effective resolution.
  - Banks can be subject to court-based insolvency procedures, albeit with NBB approval: banks can only be declared insolvent by the court at the request of or with the NBB’s agreement as the resolution authority; insolvency procedures can only be initiated with the NBB’s consent as the supervisory authority.
  - Transfer powers exist for the insolvency administrator but are unlikely to be used because insolvency would involve liquidation and pay-out to depositors, narrowing the opportunity window—particularly if the payout period is shortened to seven days as proposed.

H3: D. Deposit Protection and Payout
- The Guarantee Fund should be further strengthened.
  - In 2016, the Guarantee Fund dealt relatively well with the Optima Bank insolvency: within three weeks—then applicable payout period—close to 60 percent of insured deposits (and 40 percent of depositors) was paid out; within three months this was close to 90 and 80 percent, respectively. In total, around EUR 45 million was paid out to close to 3000 depositors.
  - The DIS’ target level is 0.8 percent of insured deposits; end-October 2017 it stood at 1.18 percent.
  - At 1.18 percent, the DIS would be unable to cover payouts to the two LSIs with the highest percentage of insured deposits; it could only cover simultaneously two of three smallest mid-size LSIs.
  - At 1.8 percent, the coverage would include the largest two mid-size LSIs together.
  - FSAP recommendation: continue collecting contributions beyond the target level; suggest the Guarantee Fund adopt an indicative higher target level commensurate with its obligations.
  - Both the DIS and national resolution funds are notional: industry-paid fees are transferred to the MoF; the Guarantee Fund can draw on the MoF up to the accumulated amounts.
    - Recommendation: segregate DIS and national resolution funds from government funds to ensure consistency with the IADI Principles and ready access in times of fiscal constraints.
    - The DIS should have standing and readily available credit lines with the MoF and/or the NBB over and above the accumulated amounts.
  - Recommendation: shorten the pay-out period to seven days by 2019 instead of the currently envisaged end-2023 schedule.
    - The FSAP team welcomed ongoing discussions on an information-sharing agreement between the Guarantee Fund and the NBB.

H3: E. Crisis Preparedness and Management
- The NBB Resolution Board should more proactively oversee crisis preparedness.
  - RRP contributes to Belgium’s crisis preparedness.
  - The NBB Resolution Board brings together pertinent authorities.
  - The NBB recovery and resolution risk team is a platform for internal cooperation and information sharing between the Resolution Unit, the Prudential Policy and Financial Stability Unit, the legal services, and the supervisory units for banks, insurers, and financial market infrastructures.
  - Some procedures (such as insolvency and withdrawal of license) have been documented; the NBB intends to develop a resolution handbook when the SRB finalizes its handbook.
  - Recommendation: mandate a committee of the NBB Resolution Board to proactively oversee national financial crisis preparedness (including regular intra- and inter-agency contingency planning and financial CSEs); this committee should not include the Board’s independent and judiciary members.
  - The committee would serve as a platform for crisis cooperation while agencies continue to autonomously exercise respective mandates.

H3: F. Staffing Capacity
- Resolution planning requires NBB capacity.
  - The NBB established a Resolution Unit with 9.5 full-time equivalents (FTE)—1.5 FTE of which is vacant and will be recruited as soon as possible.
  - About 4.5 FTE is used for resolution planning for 15 credit-institution LSIs, and participation in 18 SRB resolution teams, eight resolution colleges, and one crisis management group; the Resolution Unit is also involved in international and EU policy fora.
  - The Resolution Unit staffing is below average in comparison to peer countries; it has engaged an external consultancy firm to help develop resolution plans.
  - For supervision and recovery planning, the NBB requires less staffing: 0.25 for LSI and 0.75 FTE for SI recovery planning through the JSTs—it also participates in three Indian supervisory colleges with Belgian LSIs.
  - The Guarantee Fund participates as observer in six resolution colleges.
- Recommendations on staffing and training:
  - The NBB Resolution Unit should be flexibly staffed and adequately trained in time-tested and cost-effective resolution tools.
  - In normal times the Resolution Unit would require a relatively small number of permanent staff and could be expanded with internal and external resources as needed.
  - Establish an explicit framework authorizing the Resolution Unit to have access to relevant NBB staff and other resources with a high degree of discretion to ensure operational autonomy and functional effectiveness.
  - Pertinent staff should continue to be trained in preparing and implementing the sale of business and bridge bank tools—sale of business has proven highly cost-effective; bridge bank is essential in system-wide crises when no buyers are available.
  - The Resolution Unit will need experts in valuations, law, IT, and security.

*Source: cr1868 - 10.      The SRM should ensure the feasibility of resolution strategies for groups with D-SIBs.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1868.pdf_