How to make a SPE resolution strategy work in the EU

Abstract

When dealing with the resolution of a banking group under EU regulation there are two different approaches: Single point of entry (SPE) versus Multiple Point of Entry (MPE). In a MPE strategy, the resolution authority is taking separate resolution actions at the level of individual legal entities of the group. In a SPE strategy, the resolution authority is taking a resolution action at the level of a single entity, usually the parent undertaking, which, consequently, becomes the so called “resolution entity” building together with its subsidiaries the “resolution group”. The general idea in a SPE strategy is, that losses at subsidiary level are first streamed up to the parent undertaking (resolution entity), i. e. capital is streamed down from the parent undertaking to the subsidiary to cover its losses and ensure its recapitalisation. This leads to losses at the resolution entity level, which, if the resolution entity meets the conditions for resolution, are taken care of by applying resolution tools to the resolution entity. This procedure is not necessarily a two-step approach but could also be completed in one go. In the following, we focus on different ways to upstream losses from the subsidiary to the parent undertaking and to recapitalise the subsidiary.