## 1prtea2026004 ## Source details **Canonical URL:** [1prtea2026004](https://www.imf.org/-/media/files/publications/cr/2026/english/1prtea2026004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1prtea2026004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1prtea2026004.pdf.json) --- ### Institutional framework and mandates - Mandates and responsibilities of Portugal’s financial safety net are set within the Banking Union framework; relevant European authorities with jurisdiction include the European Central Bank (ECB), the European Commission (EC), the Single Resolution Board (SRB), and the European Stability Mechanism (ESM). - Principal national institutions in the financial safety net: Banco de Portugal (BdP), the Deposit Guarantee Fund (FGD), and the Ministry of Finance (MoF). - ECB supervises Significant Institutions (SIs); SRB leads resolution of SIs and LSIs with cross-border operations with national authorities executing operational tasks. - In Portugal: - BdP: direct supervision and resolution of LSIs with no cross-border operations; executes resolution for both SIs and LSIs. - FGD: depositor protection for all credit institutions established in Portugal (SIs and LSIs). - MoF: implements economic and financial policies and may provide financial support in crises. - EU legal framework shaping national regime: Bank Recovery and Resolution Directive (BRRD), BRRD II, and BRRD revisions transposed into Portuguese law (BRRD transposed in 2015; 2019 amendments transposed in 2022; final amendments incorporated in 2025). ### Key statistics - The Portuguese financial system is composed of 66 institutions. - Nine institutions are Significant Institutions (SIs) under SRB oversight. - 22 institutions are Less Significant Institutions (LSIs) overseen by BdP. - 35 institutions are branches of EU credit institutions. - Market share (as of 31 December 2025): - LSIs: 14.4 percent of total assets. - EU branches: 7.9 percent of total assets. ### Organization, planning, and operational tools - Division of responsibilities: - SRB accountable for SIs and cross-border LSIs; BdP handles domestic LSIs. - BdP executes resolution for both SIs and LSIs. - BdP’s Resolution Department (DRE): - Stand-alone, autonomous department reporting to the Board and Vice‑Governor. - Organization: two divisions and one unit; total of 33 employees. - Division 1: resolution planning. - Division 2: legal support, resolution policies, operationalization of resolution tools. - Operational unit: support for the FdR and FGD. - DRE and Banking Prudential Supervision Department (DSP) regularly exchange information in normal times; information-sharing protocol should be strengthened for earlier exchange during crises. - Staff turnover is a significant challenge; recruitment/training underway following designation of BdP as resolution authority for CCPs in January 2025. - Resolution planning and resolvability: - BdP participates in SRB-led resolution planning for SIs and cross-border groups; BdP responsible for resolution planning for LSIs without cross-border operations. - Three LSIs (non-cross border) are considered to have potential systemic significance and would be resolved by BdP, in close cooperation with the SRB. - Resolvability assessments conducted for all institutions with a positive Public Interest Assessment (PIA). - BdP shifting priority to operationalization of resolution tools and enhancing resolvability assessments. - LSIs with negative PIA are liquidated via corporate court-based insolvency; corporate insolvency regime deemed unsuitable—administrative insolvency regime recommended. - National Resolution Handbook and Operational Steps Documents: - Handbook currently includes procedural outline and descriptions of bail-in and sale-of-business tools; remaining tools expected by 2026. - OSDs and playbooks produced for tools and for two cross-border institutions; most institutions with positive PIA have prepared bail-in playbooks. ### Resolution process and tools - Resolution process: - DSP intensifies monitoring as an LSI deteriorates and shares information with DRE; SRB is notified of signs of distress for SIs and cross-border cases. - BdP Board initiates formal resolution; DRE prepares resolution strategy, valuations, and draft Resolution Decision when PIA is positive. - FOLTF declaration by the Board is based on off-site analyses, Early Warning Indicators, or on-site inspections. - If PIA is negative and insolvency poses no systemic threat, liquidation under corporate insolvency applies. - On the resolution weekend (typically Friday after market close): FOLTF declaration, approval of resolution strategy, adoption of Resolution Decision, communication to stakeholders, possible trading suspension, communication strategy implementation. - Temporary moratorium permitted, maximum duration of 48 hours. - BdP may appoint a special administrator or special manager to manage the institution and implement resolution actions. - Main resolution tools available: - Bail-in: write-down or conversion of liabilities into regulatory capital instruments. NCWO principle applies. - MREL: By end-2024, all Portuguese institutions met required MREL levels. One institution has not met full MREL but is meeting agreed transition levels. - Interim Resolution Instruments (IRIS) may be issued during bail-in pending Valuation 2. - Sale of business: transfer of all or part of business, assets, liabilities to a private buyer; assets/liabilities not transferred remain and are liquidated under corporate insolvency. - BANIF (2015) used sale of business and asset separation; FdR and government provided funding. - Bridge bank: BdP may establish a bridge institution; transferred assets/liabilities operate under commercial terms; residual entity liquidated under corporate insolvency. - BES (Novo Banco) 2014: bridge bank Novo Banco capitalized with FdR funding and later sold; BdP exercised re-transfer power in December 2015. - Asset management vehicle: transfer problem assets at market value to clean surviving institution’s balance sheet. - BANIF created Oitante as asset management vehicle with FdR shareholder. - Recommendations on tools: - Refine sale-of-business tool to allow BdP to package performing assets and deposits into smaller packages and auction them to sound institutions. - Refine bridge bank tool to ensure medium-term viability and conservative scope of transferred assets (typically excluding NPLs). ### Emergency Liquidity Assistance (ELA) and early intervention - ELA provision by BdP: - Notification/approval thresholds: - Up to €500 million: BdP informs ECB ex post. - Between €500 million and €2 billion: ECB must be informed promptly before assistance. - Above €2 billion: approval by the ECB Governing Council required. - Typical tenor: overnight funding; extensions beyond 12 months require ECB non-objection and additional reporting/conditions. - Eligibility conditions: - Solvency minimum regulatory capital ratios: Common Equity Tier 1 capital ratio of 4.5 percent, Tier 1 capital ratio of 6 percent, total capital ratio of 8 percent, and leverage ratio of 3 percent. - Adequate collateral; haircuts may reach up to 85 percent depending on asset risk profile. - Viable plan demonstrating restoration of liquidity and repayment. - BdP may provide ELA to an institution declared FOLTF or in resolution on a case-by-case basis; provisioning for institutions breaching regulatory requirements if credible prospect of restoring compliance within 24 weeks after the reference quarter of identified capital shortfall (i.e., meet a forward-looking solvency requirement). - Markets department and compliance and risk management department perform daily risk control and asset valuation activities during ELA. - Early intervention and recovery: - DSP conducts continuous supervision of LSIs and may require restructuring plans, limits on activities, management dismissal, or appointment of temporary administrators. - Recovery plans: - Institutions must submit recovery plans annually, except where BdP permits longer cycles for smaller, less complex banks. - LSIs submit to BdP; SIs submit to ECB. - LSIs under full obligations represent about 80 percent of Portuguese LSIs' total assets. - Cooperatives outside integrated systems have simplified requirements; central entities coordinate group recovery plans for integrated cooperatives. ### Resolution funding: SRF, FdR, and FGD roles - Four funding sources overviewed (findings): - (i) Resources in failed institutions: MREL ensures loss-absorbing capacity; all Portuguese institutions comply with MREL obligations. - (ii) Single Resolution Fund (SRF): - SRF funds resolution of SIs and systemically important LSIs. - Access permitted only after shareholders and eligible creditors have absorbed losses equal to least 8 percent of total liabilities and own funds. - SRF euro-area target: at least 1 percent of covered deposits—over €77 billion as of end-2024. - (iii) Deposit Guarantee Fund (FGD): - FGD may contribute to resolution funding but only up to losses it would have incurred under normal insolvency; capped at the lower of (i) amount of losses to be imposed to covered deposits under bail-in/other tools; and (ii) 50 percent of the FGD’s target level. - FGD not involved in resolution decision-making and participates only after BdP instructs financial assistance. - (iv) National Resolution Fund (FdR): - Currently limited role; used historically in BES (Novo Banco) recapitalization and BANIF resolution. - Since SRF establishment, FdR functions restricted to managing debt repayment from past resolutions (€7.6 billion in liabilities against €1.1 billion in assets as of end-2024), funding of investment firm resolutions, and collecting levies for the SRF. - All FdR expenditures require MoF approval. - FdR has no target level; funded by industry; authorized to borrow; can request extraordinary contributions. - FdR portfolio and policy: - As of December 2024, Portuguese sovereign debt represented approximately 12 percent of the FdR portfolio. - By end-2025, share of Portuguese sovereign bonds increased to 63 percent of total assets with a target of 85 percent of Fund’s total investments. - Investment policy determined by Boards of FdR and BdP; recent MoF instructions increased domestic sovereign holdings. - Recommendations on resolution funding: - Pursue greater flexibility in using the SRF via a financial stability exemption; the 8 percent bail-in requirement and 5 percent cap on SRF funding constrain authorities’ options. - Expand FGD role in discussions on use of its funds and ensure legal safeguards of use are met. - Curtail government role in FGD and FdR investment policies; reduce mandated minimum investments in Portuguese sovereign debt to limit concentration risk. - Relax government and parliamentary approval requirements for FdR disbursements to ensure immediate access in resolution. - Consider expanding FdR mandate to function as an ex-post resolution fund, channeling government resources as a last resort with industry repayment mechanisms. ### Deposit insurance (FGD) findings and recommendations - FGD structure and coverage: - Established in 1992; deposits guaranteed up to €100,000 per depositor per institution. - As of end-2024, coverage fully protects 97.7 percent of eligible depositors and 54 percent of total deposit value. - Minimum target level for FGD Fund: 0.8 percent of covered deposits; current level 0.95 percent (as of end-2024). - Recent investment policy increased allocation to Portuguese sovereign bonds to 36 percent of the Fund’s total investments or alternatively 22.5 percent to Portuguese debt management agency certificates. - Governance and operational arrangements: - FGD managed by a Management Committee with representatives from BdP Board, MoF, and Portuguese Banking Association; no permanent staff—BdP employees carry out FGD functions. - Payout process: BdP declares deposits unavailable; target payout within 7 working days; FGD requests depositor information within 2 working days. - Backup liquidity: extraordinary contributions may be levied up to 0.5 percent of covered deposits; FGD may borrow or request loans from BdP and Government but no standing facilities exist. - Legal protection: Management Committee members do not receive special legal protection and are exposed to potential liability for actions taken in good faith. - Recommendations: - Assign full-time permanent staff to FGD and expand dedicated staff to bolster capacity. - Restructure FGD Board to exclude representatives of the banking industry to prevent conflicts of interest (or require recusal as a less optimal alternative). - Remove mandatory MoF or parliamentary approval for FGD expenses and payouts to avoid undermining timely 7-working-day payouts. - Remove minimum relative requirement for domestic public debt holdings to enable portfolio diversification. - Establish an emergency liquidity backup facility from the MoF (or temporarily from BdP) if the FGD cannot meet payout obligations. - Grant legal protection to existing and former FGD officials, staff, and agents for actions taken in good faith in the normal course of duty. - Recalibrate the FGD target level to ensure sufficient funding for concurrent failures of several large non-systemic LSIs. - FGD should participate in discussions on resolution funding to ensure safeguards against excessive use and alignment with least-cost principles. ### Inter-agency crisis coordination, testing, and operational readiness - Crisis coordination arrangements: - No permanent inter-agency committee dedicated to system-wide financial crisis management; coordination occurs through CNSF, ad hoc committees, MoUs, and crisis-specific mechanisms. - CNSF coordinates oversight of non-crisis developments; meets quarterly; has a Permanent Secretariat with administrative support from BdP. - BdP acts as the primary technical and operational authority in crises; MoF leads where public funds or guarantees are involved. - Trilateral crisis management protocol (BdP, CMVM, ASF) under development to clarify roles, procedures, and triggers; recommended to be made more operational by formally establishing a crisis committee, membership, procedures for emergency meetings, and secretariat preparations. - Testing and simulations: - DRE participated in SRB simulations and ran national and LSI exercises; notable exercises in 2022, 2023–24, and 2024. - Ongoing joint simulation with CMVM structured in three phases: technical meetings, management simulation preparation, and execution with SRB observation. - FGD and member banks conduct periodic stress testing; latest FGD stress testing exercise occurred between November 2023 and June 2024, concluding repayments could be completed within three to four working days in tested scenarios. - Recommendations on testing and contingency planning: - Adopt and implement a multi-year crisis simulation exercise plan. - BdP, CMVM, and ASF should establish a formal, annual contingency testing program that: - specifies which elements of the resolution framework are to be tested each year; - ensures all elements are reviewed regularly and each element is tested at least once within a five-year cycle; - schedules live simulation exercises involving all safety net members, including the MoF, planned well in advance. - Primary objective of live simulations: evaluate effectiveness of inter-agency coordination and ensure clear understanding of mandates, powers, and responsibilities. ### Priority recommendations (selected from the Executive Summary table) - Adopt an administrative bank insolvency regime for financial entities with a negative PIA. — MT MoF, BdP - Enhance the information-sharing protocol between the DSP and the DRE to facilitate earlier transmission of information on distressed institutions during crises. — ST BdP - Adopt a strategy for retaining high-skilled staff and securing stable staff levels at the DRE. — ST BdP - Undertake legal changes to enable coordinated resolution of cooperative groups. — ST MoF - Adopt an explicit methodology for including cost considerations in determining a resolution strategy. — MT BdP - Expand the National Resolution Handbook and the Operational Steps Documents to include all resolution tools. — ST BdP - Refine mechanisms for auctioning packages of assets and deposits to support resolution and liquidation processes. — MT BdP - Expand the mandate of the FdR to enable it to function as an ex-post resolution fund. — MT MoF, BdP - Remove requirements on minimum FGD and FdR investments in own sovereign debt to limit portfolio concentration. — ST MoF - Remove the requirement for government approvals of FGD and FdR disbursements, including FGD payouts. — ST MoF - Expand full-time dedicated staff to bolster FGD’s capacity. — MT BdP - Introduce legal changes to exclude banking representatives from the FGD Board. — ST MoF, BdP - Introduce a public backstop liquidity facility for the FGD. — ST MoF, BdP - FGD should participate in discussions on resolution funding to ensure legal safeguards of the use of its funds are met. — MT BdP - Recalibrate the FGD target level to ensure that it is sufficiently funded. — MT BdP - Grant legal protection to existing and former FGD officials, staff, and agents. — ST MoF, BdP - Ensure the trilateral crisis management protocol under development covers robust operational modalities. — MT MoF, BdP - Adopt and implement a multi-year crisis simulation exercise plan. — MT MoF, BdP *Source: EXECUTIVE SUMMARY and excerpts — 1prtea2026004* ### EXECUTIVE SUMMARY __________________________________________________________________________ 5 ### EXECUTIVE SUMMARY ### Key findings on institutional framework and mandates - The mandates and responsibilities of the institutions in the financial safety net in Portugal are set within the Banking Union framework. The European authorities that have jurisdiction in the Portuguese banking system include the European Central Bank (ECB), the European Commission (EC), the Single Resolution Board (SRB), and the European Stability Mechanism (ESM). - The financial safety net in Portugal is comprised of three principal institutions: Banco de Portugal (BdP), the Deposit Guarantee Fund (FGD), and the Ministry of Finance (MoF). - The European Central Bank (ECB) supervises Significant Institutions (SIs). For the resolution of SIs and Less Significant Institutions (LSIs) with cross-border operations, the SRB takes the lead, with national authorities executing operational tasks. - In Portugal: - BdP is responsible for the direct supervision and resolution of LSIs with no cross-border operations. - The FGD provides depositor protection to all credit institutions established in Portugal, whether they are SIs or LSIs. - The MoF implements economic and financial policies and, in crises, may provide financial support. - Portugal’s bank resolution regime is largely shaped by the EU resolution framework, including the Bank Recovery and Resolution Directive (BRRD), BRRD II, and more recent BRRD revisions transposed into Portuguese law (BRRD transposed in 2015; 2019 amendments transposed in 2022; final amendments incorporated in 2025). ### Key statistics - The Portuguese financial system is composed of 66 institutions. - Nine of these institutions are considered significant institutions (SIs) and are under the oversight of the SRB. - 22 institutions are considered less significant institutions (LSIs) and are overseen by BdP. - 35 institutions are branches of EU credit institutions. - While most institutions in Portugal are LSIs and EU branches, their market share is only 14.4 percent and 7.9 percent of total assets, respectively (as of 31 December 2025). ### Findings on organization, planning, and tools - BdP and the SRB share responsibility for bank resolution: the SRB is accountable for SIs and cross-border LSIs, while BdP handles domestic LSIs; BdP is responsible for executing resolution for both SIs and LSIs. - BdP has a stand-alone, autonomous Resolution Department (DRE). The DRE and the Banking Prudential Supervision Department (DSP) regularly exchange information in normal times; however, their information-sharing protocol should be strengthened to enable earlier exchange about distressed institutions in times of crisis. - Legal reforms are needed to improve cooperative groups’ resolvability by enabling joint resolution of their central body and affiliated cooperatives. - Resolution funding is expected to be sourced from the EU’s Single Resolution Fund (SRF) but comes with significant preconditions. A financial stability exemption from these limits, as recommended by the recent EA FSAP, should be pursued. - Portugal’s resolution framework includes a comprehensive set of resolution tools: bail-in, sale of business, bridge bank, and asset management vehicles. - BdP has previously applied the bridge bank tool for the resolution of Banco Espírito Santo, S.A. (BES), and the sale of business and asset management vehicle tools for the resolution of Banco Internacional do Funchal, S.A. (BANIF) in 2014 and 2015, respectively. - A further refinement of the sale of business tool is needed to provide BdP with mechanisms for auctioning packages of failed banks’ assets and deposits, giving BdP greater flexibility to liquidate smaller LSIs under an administrative liquidation regime. - Bridge bank powers have been successfully used in the resolution of BES in 2014, where the National Resolution Fund (FdR) provided the needed capital (relying in part on loans from the Portuguese State) and became the sole shareholder. The FdR still holds a minority stake in the bridge bank, although an agreement has already been signed to sell the remaining stake to a private acquirer. - Resolution planning, including preparation of resolvability assessments, is well advanced: - BdP participates in SRB-led resolution planning for SIs and cross-border groups and is responsible for resolution planning for LSIs without cross-border operations. - Three LSIs (non-cross border) are currently considered to have potential systemic significance and would be resolved by BdP, in close cooperation with the SRB. - Resolvability assessments have been conducted for all institutions with a positive Public Interest Assessment (PIA). - BdP has shifted priority to the operationalization of resolution tools and to enhancing resolvability assessments. - LSIs with negative PIA are liquidated via the corporate court-based insolvency regime, which is deemed unsuitable; an administrative insolvency regime should be adopted. Liquidations under corporate law tend to be slow, raising the risk of asset value erosion. - The FGD is well established, but governance and effectiveness should be further enhanced and funding backup mechanisms established: - Assign full-time permanent staff to FGD. - Restructure the FGD Board to exclude representatives of the banking industry to prevent conflicts of interest. - Scale back government involvement in FGD decision-making. - Remove the minimum relative requirement for domestic public debt holdings in FGD’s portfolio, as it limits diversification. - Remove mandatory MoF (or parliamentary) approval for FGD expenses, including covered deposit payouts or resolution intervention. - Establish an emergency liquidity backup facility from the MoF (or temporarily from BdP) if the FGD cannot meet payout obligations. - Provide special legal protection to FGD staff and management committee members for actions taken in good faith in the normal course of duty. ### Crisis coordination and operational readiness - Crisis management would be strengthened by establishing a permanent inter-agency body responsible for coordination across authorities during crises. - The National Council of Financial Supervisors (CNSF) has a coordination role in regulation and supervision arrangements. In a crisis, BdP acts as the primary technical and operational authority and is expected to coordinate with the MoF, the Securities Supervisor (CMVM), the Insurance Supervisor (ASF), and the SRB (for cross-border banks). - The trilateral crisis management protocol under development should be concluded to provide in-depth operational guidance, clearly defined institutional mandates, and information-sharing mechanisms. - BdP should enhance operational documents: expand the National Resolution Handbook and the Operational Steps Documents to include all resolution tools. - Testing and simulations: adopt and implement a multi-year crisis simulation exercise plan. ### Recommendations on the Financial Safety Net (Table 1) - 1 Adopt an administrative bank insolvency regime for financial entities with a negative PIA. (¶8-10) — MT MoF, BdP - 2 Enhance the information-sharing protocol between the DSP and the DRE to facilitate earlier transmission of information on distressed institutions during crises. (¶52) — ST BdP - 3 Adopt a strategy for retaining high-skilled staff and securing stable staff levels at the DRE. (¶15) — ST BdP - 4 Undertake legal changes to enable coordinated resolution of cooperative groups. (¶40) — ST MoF - 5 Adopt an explicit methodology for including cost considerations in determining a resolution strategy. (¶51) — MT BdP - 6 Expand the National Resolution Handbook and the Operational Steps Documents to include all resolution tools. (¶53) — ST BdP - 7 Refine the mechanisms for auctioning packages of assets and deposits to support resolution and liquidation processes. (¶63) — MT BdP - 8 Expand the mandate of the FdR to enable it to function as an ex-post resolution fund. (¶72) — MT MoF, BdP - 9 Remove requirements on minimum FGD and FdR investments in own sovereign debt to limit portfolio concentration. (¶71) — ST MoF - 10 Remove the requirement for government approvals of FGD and FdR disbursements, including FGD payouts. (¶71 and ¶87) — ST MoF - 11 Expand the full-time dedicated staff to bolster FGD’s capacity. (¶86) — MT BdP - 12 Introduce legal changes to exclude banking representative from the FGD Board. (¶86) — ST MoF, BdP - 13 Introduce a public backstop liquidity facility for the FGD. (¶88) — ST MoF, BdP - 14 FGD should participate in the discussions on resolution funding with the objective of ensuring that legal safeguards of the use of its funds are met. (¶90) — MT BdP - 15 Recalibrate the FGD target level to ensure that it is sufficiently funded. (¶89) — MT BdP - 16 Grant legal protection to existing and former FGD officials, staff, and agents. (¶91) — ST MoF, BdP - 17 Ensure that the trilateral crisis management protocol that is under development covers robust operational modalities to support the agencies’ effectiveness. (¶97) — MT MoF, BdP - 18 Adopt and implement a multi-year crisis simulation exercise plan. (¶103) — MT MoF, BdP *Source: EXECUTIVE SUMMARY — 1prtea2026004* ### 7. BdP participates in the resolution planning and preparation of SIs through its ### 1prtea2026004 - 7. BdP participates in the resolution planning and preparation of SIs through its ### Participation in IRTs and role in resolution planning - IRTs (internal resolution teams) are established by the SRB and include staff from both the SRB and BdP; they act as the main platform for day-to-day cooperation, enabling coordinated efforts and information sharing. - Within IRTs, BdP contributes to: assessing recovery plans; drafting resolution plans; assessing institutions’ resolvability; determining and monitoring the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). - BdP implements all decisions taken by the SRB that need to be addressed by individual institutions (resolution planning and resolution decisions). ### Recommendations: Administrative insolvency regime and sale-of-business powers - Adopt an administrative insolvency regime for banks with a negative PIA; relying on the corporate insolvency regime to liquidate failed banks has numerous limitations (court-based process is slow and likely to lead to asset value erosion). - Under the proposed framework, BdP would be legally empowered and responsible for liquidating all failed banks with a negative PIA; the court-based insolvency regime would be reserved for liquidation of non-bank financial entities. - The administrative regime could be used to address failures in the cooperative sector. - BdP should be able to use sale-of-business powers also for non-systemic LSIs (rather than relying on court-based corporate insolvency) to ensure orderly wind-downs, protect critical functions, and preserve asset value. - The DRE should be able to determine costs associated with each resolution tool and factor these costs into selecting the most appropriate resolution strategy. - BdP should establish a group to draft a White Paper proposing the administrative regime for financial institutions and use it to garner inter-institutional support from key stakeholders, including the MoF. ### Organization of resolution functions — findings - The DRE (department responsible for resolution activities) is a stand-alone, autonomous department within BdP, with formalized procedures and dedicated staff; it reports directly to the Board and to the Vice-Governor (who represents BdP at the SRB). - DRE responsibilities include: (i) drafting resolution plans; (ii) conducting resolvability assessments; and (iii) coordinating with the SRB on SIs. - DRE organization and staffing: two divisions and one unit, employing a total of 33 employees. - One division: resolution planning. - Other division: legal support, resolution policies, operationalization of resolution tools. - An operational unit provides support for the FdR and FGD. - Following designation of BdP as resolution authority for CCPs in January 2025, recruitment and training for new responsibilities are underway. - Staff turnover is a significant challenge due to high market demand for DRE’s specialized skills, placing pressure on BdP’s ability to retain personnel. - DRE and DSP maintain close cooperation: DSP provides quantitative data (prudential and financial data, inputs for MREL calibration) and qualitative data (recovery plans, capital conservation plans, liquidity assessments, restructuring plans, inspection reports); DRE shares resolution plans, MREL monitoring updates, and resolvability assessments. Coordination intensifies during crises. - The BdP Board retains authority over resolution actions; when severe distress arises, DSP and DRE jointly inform the Board, which may decide to: (i) enhance supervisory measures including early intervention; (ii) promote greater data and information sharing; and (iii) activate resolution arrangements (e.g., hiring independent valuers, preparing resolution valuations, assessing FOLTF). ### Organization of resolution functions — recommendations - Prioritize developing a strategy to retain highly skilled staff and maintain stable staff levels in the DRE, given highly specialized and technical functions (e.g., operating FdR and FGD) and expanding responsibilities including oversight of administrative liquidation of smaller institutions. ### Emergency Liquidity Assistance (ELA) — findings - BdP provides temporary ELA to banks to prevent disorderly failures of solvent institutions; BdP must report each operation to the ECB, which can object if assistance conflicts with ESCB objectives and duties. - Notification/approval thresholds: - Up to €500 million: BdP required to inform the ECB only ex post. - Between €500 million and €2 billion: the ECB must be informed promptly before assistance is granted. - Above €2 billion: approval by the ECB Governing Council is required. - ELA is typically overnight funding and can be renewed; extensions beyond 12 months require ECB non-objection, an updated funding plan on a quarterly basis, justification by the BdP Governor to the ECB President, and possible additional conditions from the ECB Governing Council. - Coordination required across departments for provision of ELA: DSP (solvency and unencumbered assets), markets department (monitoring liquidity, assessing collateral, preparing contracts, provision of liquidity), and compliance and risk management department (proposal preparation, risk control measures, asset valuation methodologies). - Eligibility conditions for ELA: - Institution must be solvent, meeting minimum regulatory capital ratios: Common Equity Tier 1 capital ratio of 4.5 percent, Tier 1 capital ratio of 6 percent, total capital ratio of 8 percent, and leverage ratio of 3 percent. - Post adequate collateral; collateral may extend beyond that accepted in normal Eurosystem operations (marketable, non-marketable, real estate assets that can be valued, with adequate quality, and subject to haircuts as determined by BdP). Haircuts may reach up to 85 percent, if necessary, depending on the risk profile of the assets. - Have a viable plan based on a forward-looking solvency assessment showing how it intends to restore liquidity within the required timeframe and repay the ELA. - For the duration of the operation, the markets department and compliance and risk management department perform daily activities: risk control, direct contact with the bank, asset valuation, asset mobilization and demobilization, and communication with the ECB. - A declaration of FOLTF does not automatically preclude ELA provision; granting ELA to an institution in resolution or declared FOLTF is assessed case-by-case. BdP may provide liquidity to an institution that breaches regulatory requirements if it determines a credible prospect of restoring compliance within 24 weeks after the reference quarter in which the bank’s capital shortfall was identified (i.e., meet a forward-looking solvency requirement). - If an institution in resolution is provided liquidity assistance, it is subject to intensified supervisory oversight; DSP and DRE conduct ex post reviews, including regul24-weektes on the bank’s solvency, recapitalization, and funding plans. ### Emergency Liquidity Assistance — recommendations - Intensify monitoring of institutions receiving ELA, particularly those declared FOLTF. - Require such institutions to promptly prepare a formal monthly quantitative recovery plan with specific projections and actions. - Failure to meet targets should prompt a formal revision of the agreement between the institution and BdP; non-compliance should lead DSP to impose binding restructuring measures. ### Early intervention — findings and tools - BdP conducts continuous supervision of LSIs to detect early signs of financial distress. DSP may require restructuring plans that include: (i) limits on lending, deposit growth, or other business activities; (ii) implementation of recovery plan options; and/or (iii) management dismissal. - DSP shares qualitative and quantitative information with DRE in normal times and notifies DRE of early deterioration; in crisis, DSP informs DRE of corrective measures and appointment of a temporary administrator. - BdP’s corrective actions to stabilize a distressed bank and prevent resolution/insolvency include: additional capital buffers, liquidity requirements, sector- or borrower-specific exposure limits, on-site inspections, recommendations or injunctions, fines or sanctions. Early intervention powers also include requirements on: (i) implementing recovery plans (capital raising, asset sales, cost-cutting); (ii) altering business strategy or operations; and (iii) changing senior management and reducing risk exposures. - If conditions deteriorate, BdP may escalate intervention: enforce legal or operational restructuring, appoint a temporary administrator or special manager, impose restrictions on dividends and capital distributions, and potentially declare the institution FOLTF. ### Recovery planning — findings - Recovery plan elements for LSIs and SIs have been largely harmonized since 2012; plans are supervisory tools requiring banks to prepare in advance for restoring financial viability without relying on extraordinary public support. - Submission requirements: - Institutions must submit recovery plans annually, except where BdP permits longer cycles for smaller, less complex banks. - LSIs submit plans to BdP; SIs submit to the ECB. - BdP may simplify recovery plan obligations for certain institutions by allowing shorter plans and fewer indicators and scenarios; eligibility for simplification is determined through quantitative criteria (size, interconnectedness, scope, complexity) and qualitative criteria (performance of critical functions, level of eligible deposits not fully covered by the FGD). - Cooperatives outside the integrated system (SICAM) are subject to simplified recovery plan requirements, adapted to simpler business models and local scope; central entities coordinate comprehensive group recovery plans for other cooperatives (e.g., Caixa Central de Crédito Agrícola Mútuo). - All Portuguese LSI groups or individual LSIs not belonging to a group must submit a recovery plan to BdP; LSIs reporting recovery plans under full obligations represent about 80 percent of Portuguese LSIs' total assets. - Recovery plans of cross-border groups are reviewed within supervisors’ colleges; the consolidated supervisor leads assessments and involves BdP when the group has significant operations in Portugal. There are presently no LSI cross-border groups under BdP supervision. ### Resolution planning — findings - Resolution planning is structured under the SRM’s governing regulation; SRB has direct responsibility for planning/managing resolution of SIs and LSIs that operate in multiple member states. IRTs (led by SRB staff with BdP staff) draw up resolution plans for SIs and assess resolvability. SRB has published guidance on operational continuity and liquidity in resolution. - BdP participates in resolution planning for SIs and LSI cross-border groups and is responsible for resolution planning of non-cross-border LSIs. Currently, three LSIs are considered potentially systemic in Portugal and could be subject to BdP-led resolution using available tools; failures of other LSIs are not considered systemic and are handled through corporate (court-based) insolvency proceedings. Resolution plans are developed for non-systemic LSIs, though resolvability assessments are limited in these cases. - Resolution plans use standard templates/guidelines typically developed by the SRB; banks engage by providing data, performing dry runs, and implementing changes to enhance resolvability. Plans are assessed for credibility, feasibility, and impact on financial stability; SRB is consulted by BdP on LSI plans to ensure consistency with EU practices. - Preferred resolution strategies may include: (i) sale of business; (ii) establishment of a bridge bank; (iii) asset separation; and (iv) bail-in. MREL requirements are set by the SRB for SIs and by BdP for LSIs. - Proportionality: simplified obligations regime allows BdP to partially exempt institutions from detailed information and to draw up simpler resolution plans using BdP’s simplified obligation methodology (assessing size, interconnectedness, complexity, business model risk, volume of deposits). BdP may override model-based classification using qualitative factors. ### Operational preparedness and tools - BdP is shifting from drafting to operationalizing resolution plans and improving crisis preparedness. The DRE has developed a National Resolution Handbook; so far it includes procedural outline and descriptions of bail-in and sale of business tools, with remaining tools expected by 2026. The Handbook details crisis response steps, DSP-DRE interactions, activation of early warning system, assessment of resolution conditions (including FOLTF declaration and exhaustion of private measures and supervisory actions), and oversight of the Business Reorganization Plan’s review, approval, and monitoring. - Operational Steps Documents (OSDs) and playbooks: - OSDs provide comprehensive actions tables with responsible parties and timelines; baseline OSDs covering each resolution tool and institution-specific OSDs have been produced for two cross-border institutions (developed jointly with the SRB). - Banks have been asked to prepare playbooks on implementing resolution tools. Most institutions with a positive PIA have prepared bail-in playbooks; these are being examined to identify limitations to resolvability. Playbooks for remaining tools are under preparation. - Once completed, BdP will work with institutions to identify structural and operational changes needed to enhance resolvability. ### Cooperative banks and resolvability assessments - Cooperative banks are fully integrated into resolution planning and subject to the same requirements as other institutions; one cooperative group currently has a positive PIA and undergoes full resolution planning, making it ineligible for simplified obligations. Resolution planning typically focuses on consolidated group positions, coordinated by central institutions (e.g., Caixa Central de Crédito Agrícola Mútuo). - SRB reports that SIs have made good progress in achieving a high level of resolvability; SRB publishes an annual resolvability report with assessments and priorities, though little bank-specific disclosure due to confidentiality. - Resolvability assessments: - Mandatory for all institutions with a positive PIA and resolution strategies; conducted annually as part of each institution’s resolution planning cycle. - All such institutions have completed initial resolvability assessments and are enhancing them. SIs have finalized bail-in playbooks and are developing playbooks for other tools. LSIs completed initial assessments but lag behind SIs due to later start. - Under the current resolution framework, institutions with a negative PIA are subject to liquidation and resolvability assessments are not performed. *International Monetary Fund — Content unit: 1prtea2026004 - 7.* ### 38. The institutions were provided with a framework for participating in the resolvability ### The institutions were provided with a framework for participating in the resolvability assessment. ### Resolvability assessment framework and process - Institutions are expected to submit specific documents covering seven key resolvability dimensions: - (i) governance; - (ii) loss absorption and recapitalization capacity; - (iii) liquidity and funding in resolution; - (iv) operational continuity in resolution and access to FMI services; - (v) information systems and data requirements; - (vi) communication; and - (vii) separability and restructuring, including bail-in playbooks. - BdP reviews submissions and implements a monitoring process to track each bank's progress in enhancing resolvability. - In 2024, BdP introduced a heatmap tool to score resolvability progress across these seven dimensions for LSIs, in line with the SRB’s methodology. - Based on submitted documents, BdP assesses compliance and performs an overall resolvability assessment; institutions are classified into one of four resolvability risk categories: - Low: Missing elements do not hinder successful resolution implementation but may reduce plan quality. - Medium: Missing elements moderately restrict resolution implementation and may lower plan quality. - High: Missing elements severely impair successful implementation of the resolution plan. - N/A: The principle is not applicable to the institution. ### Recommendations on resolvability framework - Legal changes are necessary to enable the resolvability of cooperatives, which pose specific resolution challenges given the integrated system with a central institution and numerous smaller affiliated cooperatives. - Legal changes should empower BdP to address cooperatives’ resolvability, including measures such as forced mergers and loss-sharing arrangements with the central body. - Finalize and test the Resolution Handbook (as planned by the DRE): - Testing should involve both the DRE and other departments. - The Handbook should be expanded to include all available resolution tools. - BdP should develop capacity and methodology to evaluate the costs of each resolution tool; incorporating cost estimates would complement the use of PIA in determining resolution strategies. ### Resolution process — Findings - The resolution process is well-established: - As an LSI’s financial condition deteriorates, the DSP intensifies monitoring and shares basic information with the DRE, which notifies the SRB of signs of distress. - For SIs, cross-border LSIs, or entities whose strategy involves the SRF, the SRB initiates the resolution process. - For LSIs without cross-border activities, the BdP Board may activate preparatory work for resolution. - BdP’s Board of Directors initiates the formal resolution process; both the DSP and DRE can trigger resolution when: - (i) the bank is declared FOLTF; - (ii) private or supervisory actions are unlikely to restore viability; and - (iii) resolution, rather than liquidation, is in the public interest (the PIA is positive). - The FOLTF designation is made by the Board based on off-site analyses, Early Warning Indicators, or on-site inspections. - If the Board determines resolution is not in the public interest, the failing institution is liquidated through corporate (court-based) insolvency proceedings. - As the institution’s condition deteriorates but before a formal FOLTF declaration, the Board: - establishes a resolution team, appoints members, enhances monitoring, notifies SRB and other authorities, may engage external advisors, and sets up a virtual data room; - updates information and revises the resolution plan as necessary so that once resolution is triggered, decisions and implementation can take place within days. - The DRE determines whether it is in the public interest to resolve an LSI without cross-border activities, considering the institution’s current condition and potential impact on the financial system; if PIA is negative and insolvency poses no threat to financial stability, liquidation under corporate insolvency applies. - For institutions slated for resolution, the DRE prepares the resolution strategy, may appoint legal and financial advisors, initiates valuation of assets, prepares a draft Resolution Decision outlining the PIA, the resolution strategy, and an updated balance sheet, and coordinates with other authorities (e.g., CMVM in cases involving bail-in). If SRF funding is required, the SRB is informed and assumes responsibility. - BdP has identified preferred resolution strategies for all institutions under its remit with positive PIA; strategies include bail-in and sale of business tools. For other LSIs, plans provide for liquidation under corporate insolvency proceedings where PIA thresholds are not met. - The law prohibits BdP from selecting resolution over liquidation based only on a least cost analysis between the two strategies. - On the resolution weekend (typically on a Friday after market close): - BdP Board formally declares the institution FOLTF and approves the resolution strategy for LSIs without cross-border activities (SRB does so for SIs and cross-border LSIs); - a formal Resolution Decision is adopted and communicated to the institution; - losses are imposed on shareholders and creditors as appropriate; - failure is formally communicated to key stakeholders, including the DGS, CMVM, and resolution authorities in other jurisdictions; - trading is suspended if not previously suspended and a formal communication strategy is implemented. - Once BdP takes control, it updates financial data and initiates the resolution decision; strategies may involve bail-in, bridge bank, sale of business, or asset management vehicle. - BdP may impose a temporary moratorium if additional time is needed; such moratorium is limited to a maximum duration of 48 hours. - BdP may appoint a special administrator under the control of the resolution authority to manage the institution and implement resolution actions, including ownership restructuring; special managers are relevant for bail-in implementation and for bridge bank and asset management resolutions. ### Resolution process — Recommendations - Strengthen criteria for choosing resolution over liquidation by explicitly considering the costs of each strategy: - Currently, the decision is based on the PIA and institution characteristics; cost efficiency is not a legal criterion in PIAs. - Selecting the appropriate strategy should account for implementation costs of each tool. - Incorporating a least cost principle would be especially beneficial when resolving LSIs under the recommended administrative insolvency regime. - Extend the information-sharing protocol between DSP and DRE to facilitate earlier transmission of information on distressed institutions during crisis: - Currently, exchanged information focuses on the institution’s condition as it approaches a FOLTF declaration. - DSP should alert DRE whenever supervisory actions impact bank capital, solvency, or activities to ensure timely preparation, since several resolution tools require preparation time and asset valuations must be updated. - Expand the National Resolution Handbook to cover all resolution tools: - Sections on implementation of the bridge bank and asset separation tools are scheduled for completion by early 2026. - Finalizing implementation guidelines for remaining resolution tools should be prioritized. ### Resolution tools — Overview - The Portuguese resolution framework has four main resolution tools: - Bail-in: Write-down or conversion of liabilities into regulatory capital instruments. - Sale of business: Transfer, in whole or in part, to another institution or to a third party. - Bridge institution: Established by the resolution authority and operated under its control. - Asset management vehicle: Partial transfer of assets and liabilities to a stand-alone vehicle. ### Bail-in tool — Findings and practice - The BRRD and Portuguese legislation grant BdP bail-in powers to restore capital or fund a bridge institution by imposing losses on shareholders and unsecured creditors through write-down of equity or debt instruments and conversion of debt into equity; consent from shareholders or bondholders is not required. - The “No Creditor Worse Off” (NCWO) principle ensures creditors are not worse off than in liquidation. - Bail-in can be applied in open and closed bank resolutions: - Open-bank bail-in: original shareholders absorb losses, new shareholders may emerge, new management is appointed, objective is to restore and sustain the institution post-resolution with post-resolution viability measures. - Closed-bank bail-in: can be combined with sale of business, bridge bank, or asset management vehicle. - To apply bail-in, institutions must have sufficient loss absorption capacity—the purpose of MREL requirements. - By end-2024, all Portuguese institutions (both SIs and LSIs) met the required MREL levels. - Note: There is one institution that has not met its full MREL requirement but is expected to meet that target in the future; the institution is meeting all agreed transition levels. - BdP may require issuance of Interim Resolution Instruments (IRIS) during a bail-in to provide marketable securities based on preliminary valuations (Valuation 1); once final valuation (Valuation 2) is available, IRIS are exchanged for shares where applicable. ### Sale of business tool — Findings and practice - BdP can sell or transfer all or part of a failed institution’s business, including assets and liabilities, to a private-sector buyer to preserve critical banking services and prevent market disruption; approval from shareholders or creditors is not required. - Assets and liabilities not transferred remain with the resolved institution and are liquidated under corporate insolvency law. - Practical experience: BANIF resolution (2015) - BANIF was classified as an LSI but domestically systemically important (seventh-largest bank in Portugal at the time). - BdP opted for a single purchaser combined with asset separation rather than offering packages to qualified banks. - BANIF retained its banking license temporarily but was restricted from granting credit, making investments, or accepting deposits; BANIF was exempted from prudential regulatory requirements following the resolution. - Shareholders and subordinated debt holders absorbed losses, while the government and the FdR provided funding for the transaction. ### Bridge bank tool — Findings and practice - A bridge bank may be established if a failed institution is expected to have systemic impact and no private sector solution is available; BdP would create a new institution and transfer selected assets and liabilities to it; transferred assets and liabilities operate under commercial terms with BdP-appointed executives, supervised by the supervisory authority, and must comply with prudential requirements. - Assets and liabilities not transferred remain with the residual entity, which is liquidated under corporate insolvency law; the residual institution retains its license temporarily under restrictive supervisory measures. - Practical experience: BES resolution (2014) - Most loans, off-balance sheet assets, and most bank liabilities, including all deposits except those of former shareholders and management, were transferred to the bridge institution Novo Banco. - Assets and liabilities remaining in the residual entity included exposures to non-financial group entities in foreign jurisdictions, subordinated debt and senior debt held by institutional investors. - The FdR provided funding to capitalize the bridge bank; Novo Banco was later sold to private investors. - In December 2015, BdP exercised its "re-transfer power" to transfer specific senior bonds back to the residual BES to ensure creditors absorbed further losses. ### Asset management vehicle — Findings and practice - BdP can transfer problem assets to an asset management vehicle to clean up the surviving institution’s balance sheet by transferring assets at market value; this tool can be used alongside other resolution tools. - Practical experience: BANIF (asset management vehicle Oitante) - Oitante was created with the FdR as its sole shareholder to hold assets the buyer declined to acquire. - BdP sold most of BANIF’s rights (including bonds issued by the vehicle as compensation for assets transferred to Oitante) and obligations to Banco Santander Totta. ### Recommendations on resolution tools - Sale of business tool: - Refine to provide BdP greater flexibility, including within a proposed administrative insolvency regime. - Allow BdP to package performing assets and deposits into smaller packages and auction them to sound institutions to enable higher asset recoveries and permit assets and deposits to remain in the market. - Non-performing assets and off-balance sheet assets would remain in the shell to be liquidated. - Particularly valuable for preserving value when closing non-systemic LSIs quickly and effectively under an administrative liquidation regime. - Bridge bank tool: - Refine to ensure medium-term viability of the bridge bank. - Scope of asset transfers should be conservative and include only high-quality, accurately valued assets, typically excluding nonperforming loans (NPLs). - Given potential extended market presence of a bridge bank, ensuring future profitability and financial strength is critical to avoid market pressures and potential bank runs. ### Resolution funding — Findings - Four sources of funding for resolution measures: - (i) Resources in failed institutions: - All institutions in Portugal with a positive PIA are required to meet MREL requirements at all times as set by the resolution authority; MREL ensures institutions maintain adequate loss-absorbing capacity and can be recapitalized using only shareholder and creditor resources. - All Portuguese institutions comply with their MREL obligations. - (ii) Resources from the SRF: - SRF funds the resolution of SIs and systemically important LSIs. - Access to SRF resources is permitted only after shareholders and eligible creditors have absorbed losses equal to least 8 percent of total liabilities and own funds. - The SRF can be used to resolve banks and its subsidiaries, and to fund bridge banks, or asset management vehicles. - Managed under the SRB, the SRF is financed by annual contributions from banks across the Banking Union. - Its euro-area target is at least 1 percent of covered deposits—over €77 billion as of end-2024. - The SRF supports capital injections, guarantees, bridge bank funding, and asset management vehicles. - (iii) Resources from the FGD: - The FGD may contribute to funding bank resolution measures but only up to the losses it would have incurred under normal insolvency procedures. - The contribution is capped at the lower of: - (i) the amount of losses to be imposed to covered deposits under bail-in or other resolution tools; and - (ii) 50 percent of the FGD’s target level. - The FGD is not involved in resolution decision-making and participates only after being instructed by BdP to provide financial assistance. *Based on text from the provided IMF content unit.* ### 66. The FdR currently has a limited role in funding resolutions. It was used in past cases, ### The FdR currently has a limited role in funding resolutions. ### FdR role, funding, and recent activity - The FdR was used in past cases, including the 2014 recapitalization of Novo Banco and the resolution of BANIF. - Since establishment of the SRF, the FdR‘s functions have been restricted to: - managing debt repayment from past resolutions (€7.6 billion in liabilities against €1.1 billion in assets as of end-2024); - funding of investment firm resolutions; - collecting levies for the SRF. - All FdR expenditures require approval from the MoF. - The FdR does not have a target level and is funded by the industry. - At the time of the BES (Novo Banco) resolution, FdR’s limited capacity necessitated temporary advanced funding (loans) from the MoF. - FdR is financially separate from BdP and is managed by a three-member Board composed of: - a member from the BdP Board; - a member appointed by the MoF; - a member appointed jointly by BdP and MoF. - The FdR is funded via annual contributions from member banks, including domestic banks and branches of foreign banks; BdP can request extraordinary contributions, and the FdR is authorized to borrow from the market; the Fund is also financed by returns from investments and recoveries from resolved banks. ### Investment policy and portfolio composition - The Boards of the FdR and BdP determine the investment policy; FdR’s objective is to preserve portfolio value while ensuring adequate liquidity. - Historically, the FdR’s portfolio was diversified, with a high share of European sovereign bonds. - As of December 2024, Portuguese sovereign debt represented approximately 12 percent of the fund's portfolio. - Following a recent policy decision, the share of Portuguese sovereign bonds (or debt management agency certificates) in total assets markedly increased to 63 percent by end-2025, with a target of 85 percent of the Fund’s total investments. - Both the FdR and the FGD Fund are subject to budgetary rules applicable to the public administration; under those rules, the Ministry of Finance has instructed the Funds to invest their Funds in Portuguese debt to the maximum extent allowed by their investment policies. ### Government stabilization tools in crisis - The European legal framework allows the use of public equity support and temporary public ownership tools when resolution measures alone are insufficient to prevent significant adverse effects from a systemic crisis. - Such interventions are restricted to exceptional cases and must comply with the minimum bail-in requirement of 8 percent of total liabilities and own funds. ### Recommendations on resolution funding and the SRF - Greater flexibility on using the SRF via a financial stability exemption for resolution funding is warranted. - BdP should collaborate with the SRB to provide more flexibility in the rules on access to the SRF. - The requirement to write down 8 percent of total liabilities and own funds before accessing the SRF, combined with the 5 percent cap on SRF funding, limits authorities’ funding options in resolution. - This exemption is particularly important in Portugal where banks rely heavily on sight retail deposits and in slow-deterioration cases where capital levels decline significantly before resolution begins. - Without SRF funding, Portuguese banks would depend on national measures and state aid as a last resort in more extreme scenarios where losses exceed existing loss-absorbing capacity. ### Recommendations on the FGD and FdR roles, governance, and approvals - The role of the FGD in resolution funding should be expanded: - The FGD must be involved in discussions regarding the use of its funds to ensure: (i) safeguards against excessive use; and (ii) alignment with a least-cost resolution approach. - The role of the government in the functioning of the FGD and the FdR should be curtailed: - The investment policies of the FGD and the FdR should be determined by the funds themselves and by the resolution authority; mandated minimum investments in Portuguese sovereign debt increase concentration risk and should be reduced to prioritize risk diversification. - The requirement for government approval of individual FdR disbursements should be relaxed, and the need for parliamentary approval removed, to ensure immediate access of FdR funds during resolution and avoid unnecessary delays. - FdR’s mandate could be expanded to serve as an ex-post resolution fund: - The FdR could be used as an ex-post fund to channel government resources for resolution as a last resort in exceptional circumstances, with mechanisms requiring the banking industry to repay the government within a predetermined timeframe. --- ### Deposit insurance — findings - Depositor protection is provided by the FGD, established in 1992, governed by its Management Committee, with operations carried out by BdP staff. - All institutions authorized to accept deposits in Portugal must be members of the FGD, including cooperatives and branches of non-EU foreign banks; branches of EU‑based banks operating in Portugal do not participate. - The FGD guarantees deposits up to €100,000 per depositor per institution and participates in resolution funding when necessary. - The FGD is overseen by a Management Committee comprising: - a representative from the BdP Board of Directors; - a member appointed by the MoF; - a representative appointed by the Portuguese Banking Association. - The FGD currently has no permanent staff; its functions are carried out by BdP employees who handle deposit insurance alongside other responsibilities. - Payout process: - The FGD pays out deposits when BdP declares deposits unavailable, typically following withdrawal of the institution’s banking license. - Target payout is within 7 working days. - The FGD requests individual depositor information within 2 working days, typically in SCV format, then verifies and computes required payouts and available funding sources. - Deposit reimbursements can be requested via the FGD website; alternatively, depositors may visit any BdP branch to receive reimbursement. - After reimbursing depositors, the FGD becomes subrogated to the rights of the reimbursed depositors in the institution’s winding-up proceedings up to the amount paid. - FGD participation in resolution funding: - The FGD may provide financing up to the amount by which covered deposits would have been written down or, when other resolution tools are used, up to the amount that covered deposits would have incurred as losses. - FGD’s expenditures supporting resolution measures cannot exceed the lesser of: the losses it would have incurred if the institution had been liquidated under corporate insolvency proceedings; or an amount equal to 50 percent of the FGD Fund's target level, whichever is lower. - Coverage and statistics: - Coverage limit is €100,000 per depositor per institution. - As of end-2024, this coverage fully protects 97.7 percent of eligible depositors and 54 percent of the total value of deposits. - The FGD covers deposits denominated in euros and foreign currencies (converted to euros on the date deposits become unavailable). - Temporary high balances may be covered up to a higher limit for a limited period (typically 3–6 months). - For joint accounts, the deposit amount is divided equally among account holders with coverage applying individually. - Funding and targets: - The FGD is funded by ex-ante levies on member institutions. - The minimum target level for the FGD Fund is 0.8 percent of covered deposits, with the current level at 0.95 percent (as of end-2024). - Bank contributions are determined annually based on covered deposit levels and the institution’s risk profile, expressed through its Common Equity Tier 1 ratio. - While law permits payments via irrevocable payment commitments, BdP has suspended that practice. - Investment policy: - Historically invested in a diversified basket of EU sovereign bonds. - Recent policy decision increased the allocation of Portuguese sovereign bonds to 36 percent of the Fund’s total investments or, alternatively, 22.5 percent to Portuguese debt management agency certificates. - Any disbursement from the Fund requires approval from the MoF and, for amounts exceeding a certain threshold, parliamentary approval. - Backup liquidity: - Extraordinary contributions may be levied on FGD members up to 0.5 percent of their covered deposits; in exceptional cases, higher contributions may be requested. - The FGD may borrow from financial institutions or request loans from BdP and the Government, but these additional financing sources are not immediately accessible and there are no standing credit facilities with commercial banks. - Governance/legal protection: - Members of the Management Committee do not receive special legal protection and are exposed to potential liability for actions taken in good faith during their official duties. - Information exchange and representation: - An MoU between BdP and the FGD specifies notification when a member faces deposit unavailability and when BdP classifies a member as FOLTF. - The FGD Board includes a member of the BdP Board and the Head of the DRE currently serves as Secretary-General. - For groups with an established resolution college, the FGD is a member of that college and is represented in the resolution colleges of three banking groups. ### Deposit insurance — recommendations - Strengthen FGD management arrangements: - The FGD should be assigned permanent staff with expertise in resolution funding. - The presence of a Bankers Association representative on the FGD Board raises conflicts of interest and should be avoided; legal amendments should be adopted to restructure the FGD Board to exclude private sector representatives associated with the banking industry. Alternatively, the Bankers Association representative could recuse themselves from discussions involving individual banks (less optimal). - Circumscribe government role: - Scale back mandated higher share of domestic sovereign debt in the FGD investment portfolio to preserve diversification and investment decision flexibility. - Remove requirement for government approval of any FGD disbursements to avoid undermining timely 7-working-day payouts. - As an industry-funded entity, the FGD should have full discretion over its decisions to maintain independence and public trust. - Establish emergency public backup funding mechanism: - Finalize formal arrangements for government backup funding with clear terms for rapid disbursement and repayment; if immediate government support is unavailable, agreements with BdP should be made for temporary support. - Avoid market borrowing for emergency liquidity where possible due to capacity and conflict-of-interest concerns. - Review fund adequacy: - The FGD should ensure sufficient funding for payout of insured deposits in case of concurrent failure of several largest (e.g., two to four) non-systemic LSIs. - Participation in resolution funding discussions: - The FGD should participate in discussions to verify legal safeguards are met and ensure use of resources aligns with its objectives, without necessarily having a vote in selecting resolution strategies. - Legal protection for Board members: - FGD Board members should be granted legal protection from liability for actions taken in good faith in the normal course of their duties. --- ### Inter-agency crisis management — findings - Portugal has no permanent inter-agency committee dedicated to overseeing system-wide financial crisis management; coordination occurs through established bodies and crisis-specific mechanisms. - The National Council of Financial Supervisors (CNSF) coordinates oversight and response to ongoing, non-crisis developments within the financial sector; its membership includes BdP, the CMVM, and the Insurance Supervisor (ASF), with MoF participation as appropriate. - The CNSF: - facilitates information exchange and coordinates analysis among supervisory authorities; - proposes supervisory measures when multiple agencies are involved; - coordinates joint actions; - meets quarterly and monitors systemic risk and macroprudential policy response but does not have direct crisis management responsibility. - has a Permanent Secretariat with dedicated facilities and a secretary appointed from among the three authorities, with administrative support provided by BdP. - Ad hoc crisis subcommittees can be formed during specific bank distress events, involving legal, supervisory, resolution, and communication experts from BdP and other authorities. - Bilateral arrangements predominate in crisis coordination; each authority operates within its own legal and institutional framework. - In a crisis, BdP, as the resolution authority, must coordinate with the CMVM on resolution tools such as suspension of trading, cancellation of financial instruments, and amendments to the book-entry register of financial instruments. - BdP and the CMVM have a cooperation protocol to support effective collaboration. *Source: Excerpt from IMF chapter on Portugal (content unit 1prtea2026004).* ### 94. In a crisis, BdP leads the execution of resolution measures and coordinates with the ### 94. In a crisis, BdP leads the execution of resolution measures and coordinates with the MoF and the SRB ### Crisis coordination and roles - BdP acts as the central technical and operational authority in crisis events, typically convening coordination meetings informally or through resolution colleges. - The MoF leads coordination where public funds, guarantees, or EU financial assistance are involved. - BdP has occasionally established temporary inter-agency committees during periods of extreme stress. - Example: during Portugal’s 2011–14 financial adjustment program, coordination was maintained among the MoF, BdP, and international partners. ### Formal cooperation and MoUs - Formal cooperation among safety net agencies is established through MoUs. - BdP and the FGD have MoUs outlining procedures for early intervention in institutions, providing legal support for the FGD's participation in resolution financing, and detailing procedures for depositor payouts if necessary. - At the EU level, a Cooperation Arrangement exists between national resolution authorities, including BdP, and the SRB. - These MoUs define channels for crisis information exchange and coordination during resolution actions. ### Trilateral crisis management protocol (BdP, CMVM, ASF) - BdP, the CMVM, and the ASF have agreed to develop a trilateral crisis management protocol. - The protocol will: - establish cooperation mechanisms for recovery and resolution planning, and for implementing resolution actions; - clarify the scope, objectives, and procedures for coordination and information exchange related to systemic risk monitoring and crisis management; - define roles and responsibilities of the three authorities, set out procedures for information sharing and decision-making under urgent conditions, and establish communication protocols and triggers for emergency meetings. - Recommendation: make the trilateral protocol more operational by: - formally establishing a crisis committee and specifying its membership; - outlining procedures for convening emergency meetings; and - detailing preparations required from its secretariat. ### Testing and simulations — findings - The DRE has conducted scenario tests to strengthen coordination within BdP and with other safety net agencies, and has run table-top exercises involving domestic agencies. - Over the past five years, the DRE has: - participated in two simulation exercises organized by the SRB; - conducted one simplified exercise independently; and - is currently developing a second exercise in collaboration with the CMVM. - Notable simulation exercises: - 2022: SRB organized a simulation focusing on cross-border large banking group with a Portuguese SI subsidiary; home and Portuguese resolution authorities tested the SPE's operationalization, including the bail-in tool and write-down and conversion powers; participants used information from the banking group and IT systems developed for resolution purposes, such as the bail-in calculation tool. - 2023-24: DRE participated in an LSI simulation exercise involving a failing LSI and the use of the SRF; different national resolution authorities, including BdP, applied various resolution tools at different times to a hypothetical institution; BdP focused on applying the sale of business tool as an asset deal. - 2024: DRE organized a national-level internal walkthrough tabletop exercise with senior management participation; it tested the National Resolution Handbook, particularly the bail-in tool; the SRB observed the exercise covering the four resolution phases: heading to resolution, preparing for resolution, resolution weekend, and closing the case; participants played their usual roles or assumed the role of other authorities or the institution in resolution. - Ongoing joint simulation with CMVM structured in three phases: - (i) initial technical meetings over two to three months to align on key topics and clarify the CMVM’s role; - (ii) preparation of a Management Simulation through a dedicated technical meeting to draft an outline or script of board-level roles, incorporating prior technical agreements; - (iii) execution of the Management Simulation, with the SRB as a silent observer, followed by a lessons learned report. - DRE has worked with Portuguese banks on their own crisis simulation exercises; BdP has attended most as an observer. - Both the FGD and member banks conduct periodic stress testing exercises; member institutions regularly report on capacity to provide accurate information on deposits and depositors. - BdP, in collaboration with the FGD, conducts stress tests of the effectiveness of member institutions’ mechanisms for supplying information on depositors and deposits to the FGD. - The FGD stress tests its own systems to ensure rapid payout capacity; these tests assess information-gathering arrangements and data quality on credit institutions, depositors, and deposits. - The latest stress testing exercise took place between November 2023 and June 2024. - As part of that exercise, the FGD tested its repayment function with two member institutions and concluded that repayments could be completed within three to four working days via electronic bank transfers or by cheque. ### Recommendations — testing and contingency planning - BdP, the CMVM, and the ASF should establish a formal, annual contingency testing program that: - specifies which elements of the resolution framework are to be tested each year; - ensures that all elements are reviewed regularly and that each element is tested at least once within a five-year cycle; - schedules live simulation exercises involving all safety net members, including the MoF, with these exercises planned well in advance. - Primary objective of live simulations: evaluate effectiveness of inter-agency coordination and ensure that the mandates, powers, and responsibilities of all safety net members are clearly understood. *International Monetary Fund — Portugal (excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1prtea2026004.pdf_