COVID-19 exposes weaknesses in banks’ recovery plans

ECB: Findings from the 2020 benchmarking exercise show that banks need to improve their recovery plans to cope with exceptional, system-wide stresses such as the Corona pandemic.


On 17.02.2021 the ECB has published an article on its findings from the 2020 benchmarking exercise, which was carried out on the 2019 recovery plans of the significant institutions (SIs). It stresses that banks need to further  improve their recovery plans to adequately address the financial impact of extraordinary system-wide crises such as the COVID-19 pandemic:

According to the findings, pandemics can significantly affect banks' overall recovery capacity (ORC), as the feasibility of courses of action such as capital increases and the sale of subsidiaries could be severely limited in a system-wide crisis. In addition, the ECB found that macroeconomic and market-based recovery indicators in particular were too backward-looking to provide timely warning of problematic developments. These included indicators such as changes in gross domestic product and rating downgrades. A good practice of some banks was to share the internal indicator dashboards with their joint supervisory teams (JSTs) to provide them with an overview of the indicators.

The ECB plans to publish further results in the second quarter of 2021. It says it is paying particular attention to the 2021 recovery plans.

Please find the full report here.