Recovery and resolution planning is no longer a regulatory formality for mid sized U.S. banks. Treasury leaders are increasingly integrating resolution thinking into liquidity risk management, stress testing, and balance sheet strategy as supervisors focu
Recovery and resolution planning is
emerging as a central pillar of balance sheet strategy for mid sized U.S.
banks, as regulators shift their focus from static compliance exercises toward
operational readiness and demonstrable crisis capabilities.
Faisal Mohed, Director of Capital
Planning and Stress Testing at Valley Bank, believes the regulatory environment
is forcing treasury and risk teams to rethink how resolution planning connects
with day to day financial management.
Institutions with assets between $50
billion and $100 billion are facing particular pressure to integrate these
frameworks while managing limited resources.
“Recovery and resolution planning is
still often treated as a standalone regulatory exercise,” Mohed said. “But
regulators increasingly expect firms to demonstrate credible capabilities
around liquidity, management information systems, and operational readiness.”
That expectation is creating new
challenges for mid-sized institutions categorized as Group B covered insured
depository institutions.
These banks are required to
demonstrate operational capabilities comparable to larger institutions, even
though they are not obligated to produce the full resolution strategies
required of the largest banks.
“Group B institutions must
demonstrate credible operational capabilities but they are not required to
develop a full resolution strategy or franchise valuation methodology,” Mohed
said. “That inevitably creates integration burdens and misalignment across
treasury and risk functions.”
The result is that many institutions
must build new systems and processes that link liquidity stress testing,
collateral management, and reporting frameworks in ways that were not
previously required.
“Banks must be able to rapidly
mobilize liquidity and produce supporting data during stress,” Mohed explained.
“Those capabilities require fairly seamless integration between liquidity
stress testing, collateral management, and reporting systems.”
For smaller organizations, that level
of operational readiness often requires significant changes to internal
infrastructure.
Processes that were originally
designed for routine balance sheet management may not be able to support crisis
level reporting or operational continuity requirements.
“Many mid-sized institutions
effectively have to rewire processes and systems to accommodate crisis focused
data reporting,” Mohed said.
Another complication arises from
differences between traditional asset liability management frameworks and the
metrics used in resolution planning.
Treasury teams typically focus on
funding structure, interest rate risk, and balance sheet optimization, while
resolution frameworks emphasize liquidity outflows and separability of business
units.
“ALM processes and resolution
planning often rely on different assumptions,” Mohed said. “Resolution planning
places much greater emphasis on liquidity outflows, franchise components, and
separability analysis.”
These differences can create friction
between regulatory expectations and day to day risk management frameworks.
