The EBA publishes final guidance on the overall recovery capacity in recovery planning

EBA released its final Guidelines on ORC in recovery planning. These Guidelines establish a consistent framework for financial institutions to determine their ORC within their recovery plans and for competent authorities to assess it. The ORC reflects an institution’s ability to restore its financial position after a significant deterioration by implementing suitable recovery options.
The Guidelines consist of two sections:
– Section directed at financial institutions (Guidance on ORC framework):
Institutions must identify recovery options that are credible and feasible under specific scenarios. The feasibility assessment should consider operational, reputational, legal, financial, business model, and market-related factors. Scenarios must be severe enough to lead institutions to the “near-default“ point if no recovery options are implemented.
– Section directed at competent authorities (Assessment of ORC):
The assessment process involves institutions selecting recovery options, adjusting options considering constraints, calculating scenario-specific recovery capacity over specified timeframes, and determining a range for the ORC. Competent authorities review these elements, assessing recovery option credibility, feasibility, and scenario severity. They may adjust scenarios if they are not sufficiently severe and assign an indicative summary ORC score to institutions.