When a Public Interest Bank enters a situation of failure, a controlled crisis resolution procedure is preferred to avoid a traumatic bankruptcy: one of the most important tools for dealing with such situations is the Bail-in.
In order not to burden the community as a whole, the mechanism requires that the money needed to cover losses and recapitalize the institution be taken from shareholders, bondholders, depositors and creditors in general. Yes, but how much money? From which counterparties? Safeguarding which categories? And how to prove that no creditor will be treated worse than in an ordinary insolvency proceeding?
Preparing for Bail-in: the dry-run
In part to answer these questions, the European supervisor (Single Resolution Board) requires that a test called dry-run be conducted annually to verify that the bank has set up and maintains all the procedures necessary to deal with a possible emergency within a total of 48 hours, the so-called “Resolution Weekend.” To address this need, a leading Italian banking group has implemented a Data Management solution based on Irion EDM®: the platform performs calculations and supports user verifications to certify the correctness of data to be submitted to management and the Internal Resolution Team.
Process 20 million reports in 1 hour
In the specific context, the application of a resolution strategy involving the use of Bail-in involved the involvement of more than 100 corporate structures with extremely tight timelines, so a key requirement concerned the ability to compress processing time into a window of less than 2 hours. The evaluation scope included nearly 20 million reports, and the excellent processing performance allowed users to proceed by successive iterations, sifting through different scenarios, until the one that best met the exercise’s objectives was identified.
Effectiveness and autonomy with an historicized setup
The activities on the application were carried out in complete autonomy by the office involved, thanks to the effectiveness and ergonomics of the dispositive actions offered by the Solution: all the setups and different calculation configurations adopted were historicized, with evidence of the results that resulted, guaranteeing full traceability and demonstrability to any interested third parties. We summarize the main numbers of the dry-run 2023 exercise:
- Nearly 70 million records read as input and just under 20 million records written as output
- Five simulations with different parameters, supporting “what-if” analysis
- Zero technical errors encountered and full compliance of calculations performed
- Only 1 hour for the batch processing (end-to-end) of the steps included in the Solution scope
The success of the concluded exercise and the satisfaction expressed by the Customer consolidate the application supervision provided by Irion in the Resolution Plans area and allow users to prepare for the future dry-run 2024 with the peace of mind provided by the availability of a complete, powerful and configurable tool.
Download the dedicated white papers: MREL TLAC, LDR, CFR-FMIR-CIR, Bail-in, SRB Valuation
Roberto Fasano
Irion Principal Business Consultant
The author
Roberto began his experience in application consulting in the finance area in 2000, and worked for several years as a functional analyst in an IBM group company.
In 2004 he moved to the CPM sector, where he deepened his knowledge of management control, financial statements and consolidated regulatory reporting – with a focus on Data Integration aspects.
Here he gains increasing responsibilities both as senior project manager and as coordinator of a team of consultants in the banking and insurance markets. Since 2016 he enriches his experience in an international context, taking the lead in the development of new application solutions in IFRS9 and IFRS 17.
Since September 2018 he has been working in Irion within the Consulting & Solutions division, where he contributes to the development of solutions in the regulatory reporting area, of which he follows the functional analysis and presales phases.
Since 2022 he has also been part of the Market & Data Management Advisory team, where he contributes to project initiatives in the finance area bringing specialized Business skills and manages the market observatory with a focus on regulatory news in banking and insurance.
As part of these activities, he participates in the Work Stream on the Prototyping of the Banks’ Integrated Reporting Dictionary (BIRD) project, initiated by the ECB to support European supervised intermediaries in fulfilling statistical and regulatory reporting requirements.
