Banks' Rescue Plans Are So Wordy They May Not Work, ECB Says
(Bloomberg) -- Big European banks may be too verbose to handle in a crisis.
Banks’ recovery plans are long, complex and important information may be “scattered” throughout the documents, the European Central Bank said on Tuesday in a 40-page report. “This makes it challenging for the bank’s management to take swift decisions on the basis of the recovery plan, especially under time pressure,” the ECB said.
The ECB, which supervises euro-area lenders, found that the biggest of them can have recovery plans in excess of 1,500 pages.
“Based on three years of experience with assessing recovery plans, the ECB is doubtful that every bank’s plan could be implemented in a timely and effective manner in a crisis situation,” the Frankfurt-based supervisor said. “Some plans might be too large to actually be used in a crisis.”
Regulators around the world have been working since the crisis to tackle the problem of too-big-to-fail banks by boosting requirements for capital and loss-absorbing liabilities to ensure that investors, not taxpayers, pay for a firm’s collapse.
Recovery plans are part of this effort to increase the resilience of systemically important banks. They set out measures a firm can take to restore its financial position after a significant downturn, based on realistic assumptions in a range of scenarios.
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