Banks should be able to demonstrate the ability to isolate retail banking activities from trading activities and to wind down significant trading risk positions in a crisis situation, in a manner that does not jeopardize the bank’s financial health nor does significantly contribute to systemic risk.
A credible recovery and resolution plan is a challenging goal to achieve, so the criteria on passing the credibility “test” must be set high. The European Banking Authority (EBA) plays a central role as a standard setter in ensuring that the RRPs and their supervisory assessments are applied uniformly across the Member States.