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Not just in coronavirus times: “We are on a pre-emptive mission”

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Mr Ketessidis, MaSanV is the short name for a regulation on the minimum requirements for the design of recovery plans for institutions (Sanierungsplanmindestanforderungsverordnung). Part 3 regulates the simplified requirements for recovery plans. Is MaSanV very tough?

Well, it is certainly not soft. MaSanV is a legal regulation that is to be applied directly. It describes the minimum requirements we set for the recovery plans of credit institutions. We distinguish here between three levels:

At the first level, financial institutions that pose a potential systemic risk and less significant institutions with high priority – called PSI (potenziell systemgefährdende Institute) and HP-LSI – must comply with almost all the requirements for recovery planning which are spelled out in the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz), in the Delegated Regulation of the European Commission and the MaSanV.

The second level comprises the less significant institutions that are neither PSIs nor HP-LSIs, and that also cannot take advantage of special provisions. These institutions can benefit from simplified requirements. In addition, we have opted for a simplified procedure so that the institutions can submit their plans in an Excel spreadsheet. The next step will be to make the process completely digital.

Finally, institutions that belong to an IPS, i.e. an institutional protection scheme, do not need to draw up recovery plans if they submit an application and the IPS submits a plan of its own.

What are the most important points of MaSanV?

Without a doubt: the recovery options. These are the options that banks can apply in critical situations. For example, how can they still generate capital when they are in trouble? There is a wide range of options available, from capital increases to ringfencing and the sale of business units. But not every bank is equally well prepared. That is why we want to see the specific recovery options spelled out in writing, in their recovery plans. Then we can compare them against their peer group – keyword: qualitative supervisory regime – and work to improve them if necessary.

How does the coronavirus affect recovery planning?

Even recovery planning is not spared by the pandemic. BaFin is allowing the institutions to apply simplified requirements to help counter the effects of the pandemic on the real economy and the banks. But a well-thought out recovery plan makes sense particularly in times like these, when the threat of defaults looms. The purpose of a recovery plan is exactly that: to prepare the institutions for stresses that could jeopardise their viability. Therefore, it is well worth keeping at least certain chapters up to date, even if it is laborious. So in these times we, too, are concentrating on the centrepiece of planning – the recovery options – and allowing for simplified requirements in all other areas.

The coronavirus pandemic may also have an impact on the stress scenarios that PSIs and HP-LSIs have to prepare, and it is currently acceptable from a supervisory perspective to simply update an existing market-wide scenario that can take into account the current developments of the COVID-19 pandemic. The Special Report of the German Council of Economic Experts looks at three possible scenarios and might be a help here: in the first one, things move upwards again quickly – like a “V”. In the second scenario, the economy takes a little longer to recover – like a “U”. And if economic output stagnates in the long term, the result looks like an “L”. We certainly hope that this third scenario will not materialise.

Why does the respective institution not always prepare its own recovery plan?

In principle, it does do exactly that. Where institutional protection schemes in the cooperative sector and at the savings banks guarantee not only the deposits but also the continued existence of the undertaking, then it is logical to base recovery plans on this guarantor as well. The situation is somewhat different in a parent-subsidiary relationship: here we expect the group to ensure that all information which is important in connection with the recovery of a group member company can still be distinguished at the level of the individual undertaking and does not get mixed in at the group level.

What happens next with MaSanV?

MaSanV will remain dynamic, of course, and I cannot rule out adjustments. The current published version is a great success that was long in preparation: the first drafts for the MaSan Circular date from 2011. Now it has become a regulation that implements guidelines of the European Banking Authority (EBA) and substantiates an EU Delegated Regulation. This creates legal certainty and clarity, especially with regard to the special provisions and simplified requirements we spoke about earlier. Despite all the legal guidelines, MaSanV as a qualitative supervisory regime allows a great deal of leeway in terms of assessment criteria, something that now needs to be rounded out with a view to best practices.

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