resolution framework 3/3

Operational continuity’, in the context of the resolution framework, refers to the ability of a financial institution to maintain critical functions and services during a period of financial distress or resolution. It involves ensuring that essential operations, such as payments processing, customer service, and risk management, continue without significant interruption, even in the event of a resolution or restructuring.

Operational continuity planning is a key component of resolution planning for financial institutions. It involves identifying critical functions, assessing dependencies and vulnerabilities, and implementing measures to mitigate risks and ensure continuity of operations in various stress scenarios, including resolution. Open and Closed resolutions are therefore key to this process.

Open and closed resolutions are defined as follows:

1.⁠ ⁠Open resolution: In an open resolution, the failing bank continues to operate, and its critical functions and services are maintained throughout the resolution process. This typically involves the transfer of some or all of the bank’s assets and liabilities to a bridge institution or a purchaser, allowing for the continuation of essential operations. Open resolution aims to minimize disruption to customers, counterparties, and the broader financial system while facilitating the orderly wind-down or restructuring of the failing institution.

2.⁠ ⁠Closed resolution: In a closed resolution, the failing bank ceases to operate, and its assets and liabilities are transferred to a government-controlled entity, often referred to as a resolution or liquidation authority. While operational continuity may not be a primary concern in a closed resolution, the resolution authority may take steps to ensure the orderly wind-down of critical functions and the transfer of essential services to other providers to minimize disruption to customers and counterparties.

Overall, operational continuity is essential in both open and closed resolutions to mitigate the potential impact of a bank failure on financial stability and ensure the continued provision of critical services to customers and counterparties. Effective resolution planning involves balancing the need to maintain operational continuity with the need to resolve the failing institution in a timely and orderly manner.

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