© photokozyr / stock.adobe.com
Erscheinung:11.03.2022 Resolution: Communicating in a crisis
Who says what, when and how: For the first time, resolution authorities and German credit institutions are discussing the best way to communicate in the context of resolution actions.
If a credit institution gets into serious difficulties, it normally doesn’t take long for traditional and social media to start reporting it. This can trigger adverse market reactions and accelerate the crisis facing the bank. That is why good crisis communication is vital – particularly if resolution actions are taken (see info box).
BaFin’s Resolution Sector therefore organised its first “Crisis Communication” day of action at the end of November 2021. BaFin invited colleagues from the Single Resolution Board (SRB) to this event, as well as representatives from many German credit institutions for which the SRB and/or BaFin is responsible. The objective of this virtual event was to discuss with the credit institutions the challenges that arise when communicating in the context of resolution actions, and how communication processes can be better coordinated.
At a glance:Why and how banks are resolved
In response to the 2007/2008 financial crisis, the European lawmakers created a resolution regime for banks in 2015. They wanted to avoid a situation where credit institutions had to be bailed out using taxpayers’ money. Since 1 January 2018, BaFin has been Germany’s National Resolution Authority (NRA). Prior to that, the Federal Agency for Financial Market Stabilisation (FMSA) was responsible.
This means that BaFin is part of the Single Resolution Mechanism (SRM), which comprises the Single Resolution Board (SRB), headquartered in Brussels, and the national resolution authorities of the participating member states.
As an NRA, BaFin is primarily responsible for German institutions that are classified as less significant institutions (LSIs) in the Single Supervisory Mechanism (SSM). These also include financial market infrastructures (FMIs) with a banking licence and central counterparties (CCPs) with and without a banking licence.
The SRB is primarily responsible for
- institutions that are classified as significant institutions (SIs) in the SSM and are supervised by the European Central Bank; as the NRA, BaFin is represented in the internal resolution teams (IRTs).
- cross-border LSIs and
- LSIs for which responsibility passes to the SRB in certain circumstances.
The relevant legal framework comprises the Bank Recovery and Resolution Directive (BRRD) and the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz – SAG).
This framework sets out that resolution actions can be adopted if three criteria are met: (1) the institution is failing or likely to fail, (2) no alternative supervisory or private-sector measures that could avert the failure or likely failure of the institution are evident, and (3) resolution is in the public interest (proportionality).
Once crisis mode has been determined (see figure), in-depth preparations for any potential resolution action to be taken at a later date are started. In a defined crisis process, the question of whether and when the three criteria referred to above are met is examined, and which resolution strategy will allow the resolution objectives, for example restoring financial stability, to be achieved most effectively. Once the preferred resolution strategy has been decided and BaFin has determined that all the conditions for resolution are met, it publishes the resolution order. This general administrative act implements the resolution action.
Figure
@ BaFin
Why crisis communication is critical in any resolution
If a credit institution is heading towards a problem situation, in-depth reporting usually starts quickly: in the conventional media, but increasingly also in social media. Reports about the institution concerned that can be interpreted negatively can further exacerbate its situation, also because other market participants react to them, for example by withdrawing liquidity from the institution. This sort of market reaction can accelerate the decline of the institution and pose additional challenges for the supervisory and resolution authorities involved. At the latest when a resolution order is published, the authorities involved must therefore ensure that the action is accompanied by orchestrated communication aimed at stabilising the market. Coordinating this communication among all parties involved is of critical importance in all phases of the crisis process.
BaFin’s day of action
The aim of the day of action, the “Country Day Crisis Communication”, was to improve the common understanding of relevant processes and preparations with regard to content.
The event was divided into three sections with a total of eight presentations. In the first section, experts from the SRB and BaFin presented the ideal course of a crisis process (see figure, page xy), and addressed different crisis phases as well as key milestones and communication points.
Following this, the participants were informed in four different presentations how the internal resolution teams (see info box, page XY) assess the status of the institutions’ crisis communication preparations and how resolution authorities prepare crisis communication measures. The Guidelines on ad hoc disclosure obligations issued by BaFin in June 2021, which also lays down options for institutions to be exempted from ad hoc disclosure obligations in special cases, was also addressed in this context. In addition, the BaFin experts reported on their test calls to BaFin’s consumer helpline . Its staff had previously been specially trained on the topic of resolution. The consumer helpline is also expected to be the contact point for consumers in the event of a bank’s resolution. However, BaFin will then establish and publish a separate number.
In the third section, representatives of two of Germany’s largest credit institutions addressed the particular challenges and time management of crisis communication preparation at major banks. In times of social media, reports that spread quickly and do not always tell the truth are becoming increasingly important.
BaFin’s day of action is a first step towards a regular exchange about crisis communication in resolution cases. From the SRB’s perspective, it is well suited as a model for similar events in other member states of the Banking Union.
Authored by
Holger Helms
Anna-Sophie Kraft
both Division AM 3 Crisis Management
Please note
This article reflects the situation at the time of publication and will not be updated subsequently. Please take note of the Standard Terms and Conditions of Use.
