Addressing the challenges related to provisional valuation in resolution

The purpose of the project was to provide technical support to the National Bank of Romania (NBR), in the field of banking resolution, specifically with respect to provisional valuation in resolution. The project developed a methodology, manual and tool for carrying out provisional valuations. The support will enhance the ability of the NBR to carry out resolution action effectively in the case of credit institution failures.

Context

Bank or credit institution failures can be detrimental to a country’s financial stability and therefore with deep potential impacts on the real economy. The EU’s Recovery and Resolution legislation is key to ensuring that credit institution failures are dealt with quickly and effectively so as to prevent loss of value, bank runs and other scenarios. However, there are still some elements in the implementation of the banking resolution framework in Romania that are yet to become fully operational, such as the technical know-how and capacity to perform a provisional valuation to verify whether the resolution conditions are met for a failing credit institution and to take an informed decision on the appropriate actions required for resolving such institution.

Support delivered

During its 17 months’ timeline, the project focused on the development of the NBR’s technical know-how and capacity to perform provisional valuation in order to verify whether the resolution conditions are met for a failing credit institution and to take and informed decision on the appropriate actions required for resolving such an institution. The project deliverables included the development internal manuals and methodologies to assess the adequacy of credit institutions’ Management Information System (MIS) in Valuation 1 and 2 scenarios. These were accompanied by the development of a reference tool to be used by NBR in their assessments.

Results achieved

This project will enhance the ability of the NBR to conduct valuations for credit institutions in distress and improve their operational and technical capacity to conduct resolution planning and action. The project will also improve the quality and preparedness of credit institutions’ MIS and data allowing for easier valuation and resolution planning. Finally, this project will have positive impacts on financial stability and better protection of public funds while minimizing the potential impacts on the real economy in Romania in situations where credit institutions are failing.