Resolution Planning is the discipline and regulatory framework that prepares a bank or financial group to fail safely. Instead of relying on a chaotic bankruptcy or taxpayer bailout, a resolution plan maps how critical functions can continue, losses can be absorbed, and the firm can be restructured or wound down in an orderly way. In modern finance, Resolution Planning sits at the heart of financial stability, “too big to fail” reform, and cross-border banking supervision.

1. Term Overview

• Official Term: Resolution Planning
• Common Synonyms: living will, bank resolution plan, resolvability planning, recovery and resolution planning (broader term)
• Alternate Spellings / Variants: Resolution-Planning
• Domain / Subdomain: Finance / Government Policy, Regulation, and Standards
• One-line definition: Resolution Planning is the advance preparation by financial institutions and authorities for the orderly resolution of a failing firm without severe disruption to the financial system and, ideally, without taxpayer-funded rescue.
• Plain-English definition: It is a “failure playbook” for a bank or financial group. It explains what would happen if the firm became non-viable, how essential services would keep running, who would absorb losses, and how regulators would act.
• Why this term matters:
• Large financial firms can fail in ways that damage payments, deposits, lending, and markets.
• A normal insolvency process may be too slow or chaotic for systemically important institutions.
• Good Resolution Planning reduces panic, clarifies responsibilities, and improves crisis execution.
• It influences capital structure, legal entity design, operational resilience, and investor risk assessment.

2. Core Meaning

What it is

Resolution Planning is an ex ante framework used mainly for banks and other important financial institutions. It includes both:

1. Firm-side planning — what the institution documents and builds internally.
2. Authority-side planning — what regulators and resolution authorities plan to do if the firm fails.

Why it exists

It exists because financial institutions perform functions that are hard to replace quickly, such as:

• taking deposits
• processing payments
• providing market access
• clearing and settlement
• lending to households and businesses
• custody and broker-dealer activities

If such a firm collapses suddenly, the damage can spread well beyond shareholders.

What problem it solves

Resolution Planning addresses a core policy problem:

• How do you let a failing financial institution fail without creating systemic chaos?

More specifically, it tries to solve:

• disorderly insolvency
• contagion to other institutions
• interruption of critical functions
• rushed taxpayer bailouts
• uncertainty about who bears losses
• cross-border legal conflicts during failure

Who uses it

• banks and bank holding companies
• resolution authorities
• central banks and prudential supervisors
• ministries of finance/treasuries
• legal, treasury, risk, and operations teams inside firms
• debt investors and analysts
• rating agencies and consultants

Where it appears in practice

Resolution Planning appears in:

• prudential regulation
• living will submissions
• internal governance and board reporting
• legal entity rationalization projects
• issuance of bail-inable debt
• service continuity arrangements
• crisis management playbooks
• public disclosures on resolvability or resolution readiness

3. Detailed Definition

Formal definition

Resolution Planning is the process of preparing institution-specific strategies, data, governance, and operational capabilities so that a failing financial institution can be resolved in an orderly manner while preserving critical functions, allocating losses to shareholders and creditors according to law, and minimizing systemic disruption.

Technical definition

Technically, Resolution Planning is a supervisory and resolution framework that usually covers:

• identification of critical functions and core business lines
• mapping of the legal entity structure
• choice of a preferred resolution strategy
• analysis of loss absorption and recapitalization capacity
• assessment of liquidity in resolution
• operational continuity of shared services
• access to financial market infrastructures
• management information systems and data quality
• governance, escalation, communication, and execution playbooks
• identification and remediation of barriers to resolvability

Operational definition

Operationally, a resolution plan is not just a document. It is a combination of:

• a written plan
• a tested decision process
• a set of legal and financial arrangements
• data systems that can produce key information fast
• capabilities to execute under severe stress, often over a “resolution weekend”

A firm has stronger resolution readiness when it can actually execute the plan under time pressure.

Context-specific definitions

In global banking regulation

Resolution Planning usually means institution-specific preparation under a special bank resolution regime, often aligned with international standards on effective resolution.

In the United States

“Living will” is the most common public label for large-firm resolution planning. It can refer to plans required from certain large bank holding companies and designated financial firms, alongside separate planning expectations for certain insured depository institutions.

In the European Union

Resolution Planning is more explicitly authority-centered under the bank resolution regime. Authorities prepare plans, assess resolvability, remove impediments, and set loss-absorbing requirements such as MREL.

In the United Kingdom

Resolution Planning is embedded in the UK special resolution regime, with strong emphasis on capability testing, operational continuity, and firm self-assessment under the Resolution Assessment Framework.

In insurance and some non-bank finance segments

The idea exists, but the legal tools, triggers, and resolution objectives may differ. Insurance resolution, for example, focuses more on policyholder protection and long-dated liabilities.

4. Etymology / Origin / Historical Background

Origin of the term

• Resolution in finance means the formal handling of a failing firm under a special legal regime.
• Planning means the work done in advance so that the failure can be managed in a structured way.

So, Resolution Planning literally means planning ahead for an orderly resolution.

Historical development

Before the global financial crisis, many large financial firms were expected to fail under ordinary insolvency law. In practice, policymakers discovered that ordinary bankruptcy was often too slow, fragmented, and destabilizing for large, interconnected banks.

The 2008 crisis exposed several weaknesses:

• firm structures were too complex
• authorities lacked visibility into interconnections
• shared services could fail with the group
• market confidence could disappear within hours
• governments often felt forced to support institutions

How usage changed over time

Pre-2008

The focus was more on insolvency and ad hoc crisis management.

2008–2012

The phrase “living will” became widely used. Resolution Planning became a major reform area after the failures and rescues of systemically important firms.

2013 onward

The concept matured from a document-based exercise into a capability-based framework. Regulators increasingly asked not just, “Do you have a plan?” but also, “Can you actually execute it?”

Important milestones

• 2008 global financial crisis: showed the cost of weak failure-management tools
• Post-crisis reforms: major jurisdictions adopted special resolution regimes
• FSB Key Attributes: became the core international benchmark for effective resolution regimes
• TLAC and MREL developments: linked funding structures to resolution execution
• Resolvability assessments: shifted attention from paperwork to practical barriers
• Operational continuity and liquidity in resolution work: deepened the discipline beyond legal strategy alone

5. Conceptual Breakdown

5.1 Critical Functions

• Meaning: Services whose sudden interruption would materially harm the real economy or financial stability.
• Role: They determine what must be preserved through resolution.
• Interactions: Critical functions drive the choice of legal structure, funding, service contracts, and operational continuity planning.
• Practical importance: If a function is critical, the plan must show how it survives even if parts of the group fail.

Examples include payment processing, deposit access, custody, market-making in key areas, or clearing services.

5.2 Core Business Lines

• Meaning: Major revenue-generating business segments of the firm.
• Role: They help authorities understand where value sits and what may be sold, separated, recapitalized, or wound down.
• Interactions: Core business lines may cut across multiple legal entities and rely on shared services.
• Practical importance: A profitable core business line may be stabilizable, saleable, or separable in resolution.

5.3 Legal Entity Mapping

• Meaning: A detailed map of subsidiaries, branches, ownership links, guarantees, and intragroup exposures.
• Role: It shows where assets, liabilities, capital, funding, staff, contracts, and licenses actually reside.
• Interactions: This is essential for strategy choice, creditor hierarchy analysis, tax review, and service continuity.
• Practical importance: Many plans fail on execution because economic activity and legal structure do not match cleanly.

5.4 Preferred Resolution Strategy

• Meaning: The main strategy regulators expect to use if the firm fails.
• Role: It answers the question: “What happens to the group at the point of failure?”
• Interactions: It depends on legal structure, capital issuance, funding model, host-country rules, and critical function location.
• Practical importance: Without a clear strategy, the rest of the plan becomes a list of disconnected documents.

Common strategy types include:

• Single Point of Entry (SPE): losses imposed at the top holding company, with operating subsidiaries kept open
• Multiple Point of Entry (MPE): separate regional or subsidiary resolutions
• Transfer strategies: sale of business, bridge institution, asset separation, or partial transfer

5.5 Loss-Absorbing Capacity

• Meaning: Financial resources available to absorb losses and recapitalize the firm or parts of it in resolution.
• Role: It supports continuity of critical operations after losses are recognized.
• Interactions: Tied closely to capital structure, creditor ranking, TLAC/MREL, and issuance from the right entity.
• Practical importance: A strategy may look elegant on paper but fail if there is not enough legally usable loss-absorbing capacity.

5.6 Liquidity in Resolution

• Meaning: The cash and collateral needed to survive the early phase of resolution.
• Role: Even a recapitalized entity can fail if it cannot meet deposit withdrawals, margin calls, payroll, or settlement needs.
• Interactions: Depends on market confidence, central bank access, collateral mobility, payment systems, and treasury controls.
• Practical importance: Liquidity is often the difference between a controlled resolution and a disorderly collapse.

5.7 Operational Continuity

• Meaning: The ability to keep critical services running during and after resolution.
• Role: Covers IT, data centers, HR, treasury operations, legal support, trading operations, and third-party vendors.
• Interactions: Heavily linked to service companies, intragroup contracts, outsourcing, and continuity funding.
• Practical importance: A bank can be recapitalized and still fail if it loses access to systems, staff, or service providers.

5.8 Financial Market Infrastructure Access

• Meaning: Continued access to payment systems, clearing houses, settlement systems, custodians, and exchanges.
• Role: Preserves the firm’s ability to settle obligations and serve clients.
• Interactions: Requires legal continuity, collateral availability, communications planning, and counterparty confidence.
• Practical importance: Loss of FMI access can immediately freeze critical financial activity.

5.9 Governance and Triggers

• Meaning: Escalation paths, management actions, board responsibilities, and regulatory notifications linked to deteriorating conditions.
• Role: Ensures the right decisions are taken before and at the point of non-viability.
• Interactions: Connected to recovery planning, supervisory intervention, and crisis management structures.
• Practical importance: Plans fail when governance is slow, unclear, or politically contested.

5.10 Valuation and Data

• Meaning: The ability to estimate losses, franchise value, creditor impacts, and separability under time pressure.
• Role: Supports write-down, bail-in, transfer pricing, and “who bears losses” decisions.
• Interactions: Depends on accounting data, legal entity MIS, collateral records, and transaction-level reporting.
• Practical importance: Authorities need credible numbers quickly; stale or incomplete data can derail execution.

5.11 Communication Planning

• Meaning: A plan for communicating with regulators, staff, customers, investors, counterparties, and markets.
• Role: Reduces panic, rumor risk, and operational confusion.
• Interactions: Linked to legal constraints, disclosure rules, market abuse risks, and confidence management.
• Practical importance: In a crisis, unclear messaging can trigger outflows faster than actual solvency problems.

5.12 Resolvability Assessment and Remediation

• Meaning: Testing whether the firm can actually be resolved under its proposed strategy.
• Role: Identifies barriers such as legal complexity, trapped resources, weak MIS, or service dependencies.
• Interactions: Leads to structural change, contract amendments, debt issuance, or governance redesign.
• Practical importance: A plan without remediation is only a paper exercise.

6. Related Terms and Distinctions

Related Term	Relationship to Main Term	Key Difference	Common Confusion
Recovery Planning	Closely related predecessor stage	Recovery tries to restore viability before failure; resolution assumes failure is no longer avoidable	Many people treat recovery and resolution as the same
Living Will	Common synonym, especially in the US	Often refers to the formal firm-submitted resolution plan	Used too broadly outside the US
Resolvability	Outcome or condition linked to planning	Resolvability means the firm can actually be resolved; planning is the process to get there	Having a plan does not guarantee resolvability
Insolvency / Bankruptcy	Alternative failure process	Ordinary insolvency may not preserve critical financial functions	People assume resolution is just bankruptcy with a new name
Bail-in	One tool used in some resolution strategies	Bail-in writes down or converts eligible liabilities; it is not the full plan	Mistaken for the entire resolution regime
TLAC / MREL	Financial requirements that support resolution	These are loss-absorbing resource requirements, not the full planning framework	Often confused with the plan itself
Stress Testing	Risk management and supervisory tool	Stress tests assess resilience before failure; resolution planning handles failure management	Both involve severe scenarios, but with different objectives
Business Continuity Planning	Operational resilience tool	BCP covers disruptions like cyber or disaster; resolution planning covers institutional failure	Shared services create overlap
Wind-down Planning	Used in some non-bank or non-systemic contexts	Wind-down may assume a managed exit without systemic support tools	Often confused in fintech and investment firm contexts
Crisis Management Group	Governance structure for cross-border firms	A CMG coordinates authorities; it is not the plan itself	Readers sometimes confuse the forum with the framework

Most commonly confused pairs

Resolution Planning vs Recovery Planning

• Recovery: “How do we save the firm?”
• Resolution: “If saving it fails, how do we handle failure safely?”

Resolution Planning vs Bankruptcy

• Bankruptcy: ordinary court-led insolvency process
• Resolution: special public-interest regime for critical financial firms

Resolution Planning vs TLAC/MREL

• Resolution Planning: full strategy and execution framework
• TLAC/MREL: one funding pillar within that framework

Resolution Planning vs Business Continuity Planning

• BCP: disruption without necessarily failing as a legal entity
• Resolution Planning: failure of the institution itself

7. Where It Is Used

Banking and lending

This is the main home of Resolution Planning. It is used for:

• global systemically important banks
• large domestic banks
• major banking groups with cross-border operations
• institutions that rely on critical payment, deposit, and market functions

Policy and regulation

Resolution Planning is a central policy tool in post-crisis financial reform. It appears in:

• prudential supervision
• special resolution regimes
• systemic risk oversight
• resolution authority planning
• cross-border supervisory cooperation

Finance and capital structure

Within firms, it affects:

• holding company structure
• debt issuance strategy
• internal capital and liquidity positioning
• legal entity rationalization
• service company design
• contingency governance

Stock market and debt markets

It matters to market participants because it affects:

• perceived bailout expectations
• equity dilution risk
• bail-in risk for creditors
• seniority and recoverability analysis
• spread pricing for bank debt
• investor confidence in crisis management

Reporting and disclosures

Resolution Planning can appear in:

• public sections of living will submissions
• annual report discussions of capital and resolvability
• regulatory disclosure on MREL/TLAC and structural reform
• firm self-assessments or resolvability statements in some jurisdictions

Accounting and valuation

It is not an accounting standard, but accounting data is essential for:

• legal entity balance sheet analysis
• valuation at the point of failure
• creditor hierarchy analysis
• write-down and conversion mechanics
• estimation of post-resolution capital needs

Analytics and research

Researchers and analysts use Resolution Planning to study:

• systemic risk
• funding structures
• organizational complexity
• cross-border coordination
• failure management credibility
• moral hazard and “too big to fail” reform

8. Use Cases

8.1 Global bank “living will” submission

• Who is using it: A large cross-border banking group
• Objective: Meet regulatory requirements and prove orderly resolvability
• How the term is applied: The bank prepares a resolution plan covering critical functions, strategy, legal entities, financial resources, and operational continuity
• Expected outcome: Regulators gain confidence that the bank can be resolved without severe market disruption
• Risks / limitations: The plan may rely on assumptions that fail in a real crisis, especially across jurisdictions

8.2 Resolution strategy design for a domestic systemically important bank

• Who is using it: National resolution authority and the bank
• Objective: Choose a realistic failure-handling strategy
• How the term is applied: Authorities test whether bail-in, sale of business, transfer, or bridge approaches are feasible
• Expected outcome: A preferred strategy aligned with local law and the bank’s actual structure
• Risks / limitations: Political pressure or weak legal tools may limit options

8.3 Legal entity simplification project

• Who is using it: Bank management, legal, tax, operations, and treasury teams
• Objective: Remove barriers to resolvability
• How the term is applied: The bank reduces unnecessary subsidiaries, rewrites service agreements, and aligns activities with resolution entities
• Expected outcome: Faster execution and fewer trapped resources during failure
• Risks / limitations: Restructuring may be expensive and may affect tax, governance, or licensing arrangements

8.4 MREL/TLAC issuance planning

• Who is using it: Treasury and capital management teams
• Objective: Ensure enough eligible liabilities are available for loss absorption
• How the term is applied: The bank issues debt from the correct entity and tenor so that losses can be imposed where the strategy requires
• Expected outcome: Stronger support for recapitalization in resolution
• Risks / limitations: Market conditions may make issuance costly or difficult

8.5 Operational continuity and shared-services redesign

• Who is using it: COO, operations, outsourcing, IT, and legal teams
• Objective: Keep critical services running during resolution
• How the term is applied: The firm maps critical services, documents dependencies, and establishes contractual continuity mechanisms
• Expected outcome: Payments, trading support, IT, and finance functions continue through the crisis
• Risks / limitations: Third-party vendors or intra-group service companies may still pull back at the wrong moment

8.6 Investor due diligence on bank debt

• Who is using it: Bond investors, analysts, and rating teams
• Objective: Assess loss severity and bail-in risk
• How the term is applied: They review capital structure, resolution entity location, eligible liabilities, and disclosed strategy
• Expected outcome: Better pricing of bank debt and more informed portfolio risk management
• Risks / limitations: Public information may be incomplete compared with confidential supervisory data

9. Real-World Scenarios

A. Beginner scenario

• Background: A student hears that a large bank must keep a “living will.”
• Problem: The student thinks this means the bank is expected to fail soon.
• Application of the term: The professor explains that Resolution Planning is like a fire escape plan: it is required because the consequences of failure are huge, not because failure is expected tomorrow.
• Decision taken: The student reframes it as preventive infrastructure.
• Result: The student understands that Resolution Planning is a stability tool, not a prediction.
• Lesson learned: A good plan is about preparedness, not panic.

B. Business scenario

• Background: A multinational bank runs payments, treasury, and IT through one service company that supports 40 subsidiaries.
• Problem: In failure, if the service company stops operating, the bank cannot process transactions.
• Application of the term: Resolution Planning identifies the service company as critical and requires continuity funding, robust service-level agreements, and governance to keep it operating during resolution.
• Decision taken: Management ring-fences critical support contracts and ensures the service company can continue to provide services.
• Result: The group becomes more resolvable.
• Lesson learned: Operational continuity can be as important as capital.

C. Investor / market scenario

• Background: A debt investor is evaluating two large banks.
• Problem: Both have similar profits, but one has a cleaner holding company structure and more transparent resolution disclosures.
• Application of the term: The investor uses Resolution Planning insights to assess where losses would fall in a crisis and how likely a disorderly failure would be.
• Decision taken: The investor prefers the bank with clearer resolvability and better-positioned loss-absorbing debt.
• Result: The portfolio has more predictable downside risk.
• Lesson learned: Resolution credibility affects security pricing, not just regulation.

D. Policy / government / regulatory scenario

• Background: Authorities are reviewing a domestic systemically important bank with heavy reliance on short-term wholesale funding.
• Problem: If funding evaporates, a disorderly collapse could disrupt national payment systems.
• Application of the term: Resolution Planning is used to assess whether the bank has a feasible strategy, enough loss-absorbing resources, and adequate liquidity arrangements.
• Decision taken: The authority requires remedial actions, including liability structure changes and stronger data capabilities.
• Result: The bank becomes better prepared for crisis handling.
• Lesson learned: Resolution Planning is not passive documentation; it often drives structural reform.

E. Advanced professional scenario

• Background: A global banking group operates through major subsidiaries in the US, EU, and UK.
• Problem: Home authorities prefer a Single Point of Entry strategy, but host authorities fear local losses and may ring-fence capital and liquidity.
• Application of the term: Cross-border Resolution Planning compares SPE and MPE outcomes, tests internal TLAC placement, reviews legal recognition of stays and bail-in, and identifies local execution risks.
• Decision taken: The group adopts a hybrid structure: mostly SPE, with specific prepositioned resources and contingency options for critical host jurisdictions.
• Result: The final plan is more realistic and more likely to survive political stress.
• Lesson learned: Cross-border resolution is as much about legal credibility and coordination as about balance sheet math.

10. Worked Examples

10.1 Simple conceptual example

Imagine a banking group with:

• a holding company at the top
• one main deposit-taking bank
• a broker-dealer subsidiary
• a central IT and operations service company

If the group fails, the question is not just “Who owes money?” It is also:

• which entity should absorb losses?
• how do customers keep access to deposits and payments?
• how does the broker-dealer stay connected to market infrastructure?
• who keeps the service company running?

That is Resolution Planning in action: turning a complex failure into a controlled sequence.

10.2 Practical business example

A bank discovers that its treasury function centrally sweeps cash from many subsidiaries into one parent account every day.

Problem: In resolution, local subsidiaries might lose access to funds exactly when they need liquidity most.

Resolution Planning response: 1. Map cash dependencies by entity. 2. Identify which subsidiaries perform critical functions. 3. Assess whether funds are trapped, movable, or legally restricted. 4. Rework intragroup funding arrangements. 5. Preposition some liquidity where needed.

Practical result: The resolution strategy becomes executable rather than theoretical.

10.3 Numerical example

A banking group estimates the following for a severe failure scenario:

• Projected losses during resolution: 18 billion
• Target post-resolution capital needed for surviving critical entities: 10 billion
• Eligible bail-inable resources at the resolution entity: 32 billion
• Expected cash outflows in the first week of resolution: 9 billion
• Expected collateral and margin calls: 4 billion
• Operating liquidity needs: 2 billion
• Immediately deployable liquidity: 12 billion

Step 1: Estimate resolution capital need

Resolution Capital Need = Projected Losses + Target Post-Resolution Capital

= 18 + 10 = 28 billion

Step 2: Compare with available loss-absorbing resources

Coverage Ratio = Eligible Bail-Inable Resources / Resolution Capital Need

= 32 / 28 = 1.14x

This suggests the group has a surplus over the scenario estimate.

Step 3: Estimate liquidity gap in resolution

Resolution Liquidity Gap = Outflows + Collateral Calls + Operating Needs - Deployable Liquidity

= 9 + 4 + 2 - 12 = 3 billion

Interpretation

• Capital side: broadly adequate under this scenario
• Liquidity side: short by 3 billion

Decision implication

The firm may need to:

• preposition collateral
• improve liquidity mobility
• build contingent funding options
• reduce expected outflows

10.4 Advanced example: choosing SPE vs MPE

A group has:

• parent holdco debt that can absorb losses
• highly integrated operations across countries
• major local subsidiaries in two jurisdictions with strong host supervisors

Option 1: SPE

• Losses absorbed at the parent
• Subsidiaries remain open
• Cleaner if authorities cooperate

Option 2: MPE

• Major subsidiaries resolved separately
• Better where host authorities demand local protection
• More duplication of capital, liquidity, and services

Analysis

If integration is high and home-host coordination is credible, SPE may be efficient. If local ring-fencing risk is high, MPE may be more realistic.

Lesson

The “best” resolution strategy is not always the simplest one. It must be legally and politically executable.

11. Formula / Model / Methodology

There is no single universal formula for Resolution Planning. It is primarily a regulatory and operational framework. However, several analytical metrics are commonly used to test whether a strategy is credible.

11.1 Resolution Capital Need (internal planning metric)

Formula:

RCN = L + C

Where:

• RCN = Resolution Capital Need
• L = projected losses through failure and stabilization
• C = target post-resolution capital needed for continuing critical entities

Interpretation:
This estimates how much resource is needed to absorb losses and recapitalize the surviving business.

Sample calculation:

• L = 18
• C = 10

RCN = 18 + 10 = 28

Common mistakes:

• counting accounting capital that is trapped in the wrong entity
• ignoring legal restrictions on resource transfer
• underestimating losses in stressed market conditions

Limitations:

• scenario dependent
• not itself a legal regulatory requirement
• may differ from statutory valuation outcomes

11.2 Loss-Absorbing Capacity Coverage Ratio

Formula:

LAC Coverage Ratio = E / RCN

Where:

• E = eligible bail-inable or otherwise usable loss-absorbing resources
• RCN = Resolution Capital Need

Interpretation:

• > 1.0 suggests estimated resources exceed estimated need
• < 1.0 suggests a shortfall under the scenario

Sample calculation:

• E = 32
• RCN = 28

Coverage Ratio = 32 / 28 = 1.14x

Common mistakes:

• including liabilities that are not legally eligible for bail-in
• ignoring creditor hierarchy
• assuming all issued debt is available at the right resolution entity

Limitations:

• internal analytical measure, not a substitute for jurisdiction-specific TLAC/MREL rules
• does not solve liquidity risk

11.3 Resolution Liquidity Gap

Formula:

RLG = O + M + N - D

Where:

• RLG = Resolution Liquidity Gap
• O = expected cash outflows
• M = collateral or margin calls
• N = operating liquidity needs
• D = immediately deployable liquidity sources

Interpretation:

• positive number = liquidity shortfall
• zero or negative number = no immediate gap under the scenario

Sample calculation:

• O = 9
• M = 4
• N = 2
• D = 12

RLG = 9 + 4 + 2 - 12 = 3

Common mistakes:

• double counting liquidity sources
• assuming central bank access without confirming eligibility
• forgetting intraday liquidity or FMI-related needs

Limitations:

• highly sensitive to market confidence
• may change hour by hour in a real crisis

11.4 Critical Function Scorecard

This is usually an internal classification tool, not a mandated formula.

Illustrative formula:

CFS = 0.35S + 0.25U + 0.20I + 0.20O

Where:

• CFS = Critical Function Score
• S = systemic importance score
• U = unsubstitutability score
• I = interconnectedness score
• O = operational dependency score

All inputs are scored from 0 to 100.

Sample calculation:

• S = 90
• U = 80
• I = 70
• O = 80

CFS = (0.35 × 90) + (0.25 × 80) + (0.20 × 70) + (0.20 × 80)

= 31.5 + 20 + 14 + 16 = 81.5

Interpretation:
A higher score suggests the function should be treated as more critical in planning.

Common mistakes:

• using arbitrary weights without governance approval
• scoring based on business prestige instead of systemic impact
• ignoring jurisdiction-specific public-interest considerations

Limitations:

• model-driven and subjective
• may oversimplify qualitative judgment

11.5 Related regulatory metric: TLAC or MREL ratio

These are related but not identical to Resolution Planning.

Illustrative TLAC ratio:

TLAC Ratio = Eligible TLAC / Risk-Weighted Assets

Example:

• Eligible TLAC = 180
• Risk-Weighted Assets = 1,200

TLAC Ratio = 180 / 1,200 = 15%

Why it matters:
Such ratios help ensure that the strategy is financially supportable.

Important caution:
Actual definitions, calibration, and binding requirements vary by jurisdiction and institution type. Always verify the current rule set that applies.

12. Algorithms / Analytical Patterns / Decision Logic

Resolution Planning is not driven by trading algorithms, but it does use structured decision logic.

12.1 Strategy selection logic: SPE vs MPE vs transfer tools

What it is:
A framework for deciding how the group would be resolved.

Why it matters:
The wrong strategy can fail because of legal, funding, or political constraints.

When to use it:
When building or revising a preferred resolution strategy.

Illustrative logic: 1. Are critical operations concentrated in one main group structure? 2. Is there a credible parent-level loss-absorbing stack? 3. Are host authorities likely to cooperate? 4. Are subsidiaries operationally separable? 5. Can local critical functions be preserved under group-wide resolution?

Limitations:
Real crises involve political behavior that simple decision trees cannot fully capture.

12.2 Criticality mapping

What it is:
A process for classifying functions and services by systemic importance.

Why it matters:
You cannot preserve everything. The plan must identify what truly matters.

When to use it:
At the start of planning and whenever the business model changes.

Typical pattern: – identify activities – test public-interest impact – assess substitutability – map dependencies and legal entities – classify functions as critical or non-critical

Limitations:
Criticality can change in stress; a normally replaceable service may become irreplaceable in a crisis.

12.3 Impediment heat map

What it is:
A structured ranking of barriers to resolvability.

Why it matters:
Helps management and regulators prioritize remediation.

When to use it:
During resolvability assessments and governance reviews.

Typical categories: – legal structure – funding and liquidity – data quality – operational continuity – communication readiness – cross-border enforceability – FMI access – valuation capability

Limitations:
Heat maps can create false comfort if ratings are not backed by testing.

12.4 Trigger and escalation framework

What it is:
A set of indicators and governance steps linked to deterioration.

Why it matters:
Delays in escalation can eliminate viable options.

When to use it:
Alongside recovery planning and crisis governance design.

Typical stages: 1. early warning 2. heightened monitoring 3. recovery actions 4. non-viability assessment 5. entry into resolution

Limitations:
The exact legal trigger for resolution is statutory and jurisdiction-specific; internal indicators do not replace legal determinations.

12.5 Resolution weekend playbook

What it is:
A time-sequenced action plan for the first 24 to 72 hours.

Why it matters:
Many critical actions must happen fast, often outside market hours.

When to use it:
For simulations, tabletop exercises, and crisis readiness reviews.

Typical items: – decision governance – legal entity data extraction – creditor and debt analysis – communication drafts – operational continuity confirmation – FMI and counterparty outreach – valuation support – staff and vendor continuity actions

Limitations:
A playbook is only as good as the data and people available during the event.

13. Regulatory / Government / Policy Context

13.1 International / global context

At the international level, Resolution Planning is shaped largely by post-crisis financial stability reform. Key themes include:

• orderly failure instead of bailout
• continuity of critical functions
• cross-border cooperation
• creditor loss absorption
• legal powers for transfer, bail-in, bridge institutions, and temporary stays

The international benchmark most often associated with effective resolution regimes is the FSB Key Attributes framework. Basel standards are highly relevant to prudential resilience, but resolution law and planning often sit in a wider architecture involving finance ministries, central banks, supervisory authorities, and dedicated resolution authorities.

13.2 United States

Key features commonly include:

• Living will requirements for certain large bank holding companies and designated firms
• Separate resolution planning expectations for certain large insured depository institutions
• Orderly liquidation tools for systemic cases under federal law
• strong focus on:
• clean legal structures
• parent-level loss absorption
• liquidity positioning
• governance triggers
• operational continuity
• derivatives and qualified financial contracts
• data and management information systems

What to verify:
The exact filing requirements, submission cycles, scope, and firm categories can change. Always check current rules from the relevant US authorities.

13.3 European Union

The EU framework typically includes:

• bank resolution rules under the Bank Recovery and Resolution Directive
• centralized elements for euro area banking groups under the Single Resolution Mechanism
• authority-led resolution planning and resolvability assessment
• minimum requirement for own funds and eligible liabilities (MREL)
• powers such as:
• bail-in
• sale of business
• bridge institution
• asset separation

Distinctive EU emphasis: – authority-driven planning – removal of impediments to resolvability – MREL calibration linked to preferred strategy – strong cross-border coordination inside the banking union

What to verify:
MREL structure, internal MREL expectations, and public disclosure requirements are technical and may evolve.

13.4 United Kingdom

The UK approach generally sits within the special resolution regime and is associated with:

• Bank of England resolution authority functions
• prudential oversight by the PRA
• resolvability and execution capability testing
• MREL requirements
• the Resolution Assessment Framework, under which certain firms assess and disclose aspects of readiness

Distinctive UK emphasis: – practical capability testing – continuity of business services – communication and governance readiness – firms demonstrating not only strategy, but usability

13.5 India

India’s overall financial distress architecture includes sector-specific banking regulation, supervisory tools, deposit insurance, and a broader insolvency regime for non-bank corporates. However:

• the corporate insolvency framework is not the same thing as bank resolution planning
• banking-sector failure management remains more specialized and legally distinct
• the public “living will” style regime is not always framed in the same way as in the US or EU

Practical takeaway for India:
Readers should verify the latest position from the RBI, relevant banking laws, deposit insurance arrangements, and any legislative updates affecting financial institution resolution.