Resolution planning

An important part of financial crisis management is planning and preparation. This includes drawing up resolution plans for the institutions in question and deciding how much capital and bail-inable liabilities they should have. The purpose of this is to enable effective management of any crisis.

The resolution plans and minimum requirement for own funds and eligible liabilities (MREL) also have important preventative effects. For instance, the minimum requirement makes it clear in advance that the shareholders and certain creditors will cover losses in a crisis. This gives institutions an incentive to keep risk levels in their operations low, which reduces the risk of a crisis.

Extent of planning depends on systemic importance

How an institution in a crisis is managed depends on its importance to the financial system. In general, only institutions whose operations are critical to the financial system will be subject to resolution. Other institutions will generally be managed via bankruptcy or liquidation.

An important part of resolution planning is therefore to assess whether an institution has operations which are of such importance to the financial system and society that it cannot be placed in bankruptcy or liquidation. The outcome of that analysis determines, amongst other things, the size of the minimum requirement and the extent of the resolution planning.

Plans contain crisis management measures

The resolution plans contain the measures that the Debt Office plans to carry out in the resolution, for example sale of business and bail-in. As part of the planning, the minimum requirement for own funds and eligible liabilities is set. This requirement is intended to ensure that the institution has sufficient own funds and bail-inable liabilities to enable the Debt Office to carry out a resolution.

As part of the planning, the Debt Office will also undertake an assessment of whether the resolution can be carried out without causing a serious disruption to the financial system. If this assessment shows that there are substantive impediments to carrying out resolution, these must be addressed.

The Debt Office can then require the institution to propose measures which it considers can remove or limit the substantive impediments. If the Debt Office considers the measures the institution proposes are insufficient to effectively remove or limit the impediments, it can direct the institution as to which measures should be undertaken.

Smaller institutions have simplified obligations

Institutions whose activities are not deemed to be critical to the operation of the financial system may, following a decision by the Debt Office, be subjected to less extensive planning requirements, known as simplified obligations. This principally applies to institutions whose failure is judged possible to manage through bankruptcy or liquidation. For these institutions, the minimum requirement for own fund and eligible liabilities will not exceed their capital requirements.

Periodic reporting from financial institutions

The Swedish National Debt Office’s assignment as resolution authority comprises planning and preparation for the implementation of an effective crisis management strategy for financial institutions. All institutions covered by the regulation, whether or not they are deemed systemically important, are obligated to provide the Debt Office with the information and assistance that it requires to draw up resolution plans.

Starting in 2019, the institutions shall periodically report information for resolution planning to the Swedish Financial Supervisory Authority (FI). The Debt Office subsequently collects the information from FI. In the document “Rapportering för resolutionsplanering 2019”, the Debt Office specifies which information it requires in its role as resolution authority and how FI wants the relevant institutions to report.

Rapportering för resolutionsplanering 2019 (only available in Swedish)

FI provides a list of the firms that are covered by the Resolution Act

The listing includes the institutions that are affected by the reporting requirements (only available in Swedish)

Simplified obligations for resolution planning