Recovery and Resolution Planning

The ideas behind the resolution plan come up in work on preparing for resolution and in work on deciding which legal entity's books carry a trade. A plan maps critical functions to entities. When the authorities assess how easily a firm can be resolved, booking practices for trades are also assessed.

Why plans are set in advance

A disorderly failure of a large, globally active financial institution is expected to have a serious adverse effect on the financial and economic systems of many countries (systemic risk)¹. Thinking about how to resolve a firm only once it is close to failing comes too late.

The Financial Stability Board (FSB) document Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes) sets out the goals of a resolution framework. They are to resolve a financial institution in an orderly way, to avoid exposing taxpayers to loss from public support for solvency, and to keep critical economic functions running².

There are two kinds of plan. A recovery plan sets out the options for a financial institution to restore its financial strength and viability when it is under severe stress. A resolution plan is a guide for the authorities to carry out an orderly resolution when recovery is not feasible or has proven ineffective³. Senior management of the financial institution is responsible for developing, maintaining, and, where needed, executing the recovery plan. The authorities are responsible for developing, maintaining, and executing the resolution plan⁴.

From plan to resolution, the process runs in the following order. The party responsible at each stage is shown.

1. In normal times, senior management of the financial institution prepares and updates the recovery plan, and the authorities review whether it can be executed as part of supervision⁴.
2. Under severe stress, the financial institution carries out the options in its recovery plan. Examples are raising capital, selling subsidiaries or separating businesses, restructuring by converting debt into equity, and securing funding. At this stage the financial institution does not yet meet the conditions for resolution⁵.
3. When the institution is no longer viable or is likely to become non-viable, and has no reasonable prospect of returning to viability, the authorities should start resolution. The Key Attributes require a regime that can be entered before the institution is balance-sheet insolvent and before all of its capital has been depleted⁶.
4. The authorities choose and carry out resolution tools, using the resolution plan as a guide. The plan neither obliges the authorities to implement it nor prevents them from taking a different strategy⁷.

Figure description

In normal times the financial institution prepares and updates a recovery plan, and the authorities review whether it can be executed. The authorities prepare and maintain a resolution plan. Under severe stress, the financial institution carries out the options in its recovery plan, and when it is not viable and cannot be restored, the authorities should start resolution. The authorities choose and carry out tools, using the resolution plan as a guide. The recovery plan is the responsibility of the financial institution, and the resolution plan is the responsibility of the authorities.

The figure lists the steps from top to bottom, but the review of the recovery plan and the preparation of the resolution plan are not in time order. "Not viable" includes being likely to become non-viable⁶. The authorities may decide not to disclose all or part of the resolution plan to the financial institution⁸.

Effective plans are required for global systemically important financial institutions (G-SIFIs) and for other financial institutions that the authorities assess could affect financial stability if they failed. A plan reflects the institution's nature, complexity, interconnectedness, substitutability, and size, and is updated at least annually or when the business or structure changes materially⁹.

Resolution tools

The Key Attributes call for the authorities to have a broad set of powers. The following table shows the main tools among them¹⁰.

In a transfer of business, the transfer must be effective without the consent of creditors or others, and the transfer itself must not be a default or termination event under a contract¹¹.

The authorities should have the legal and operational capacity to use the tools alone, in combination, or in sequence, and to apply different tools to different parts of the business¹⁴.

There are limits on how creditors are treated. As a rule, equity absorbs losses first, and losses are not imposed on senior liabilities until all subordinated liabilities (including regulatory capital instruments) have been written off. Creditors should be entitled to compensation if they would receive less than they would have received in liquidation¹⁵. The authorities should be able to resolve a firm without relying on public ownership of or support from bail-out funds. Provision should be made to recover any temporary funding losses from shareholders and unsecured creditors and, if necessary, from the financial system as a whole¹⁶.

There are two ways of thinking about how to resolve a group. In the Single Point of Entry (SPE) approach, a single authority applies resolution powers to the top holding company and resolves the group as a whole. In the Multiple Point of Entry (MPE) approach, several authorities apply powers to individual entities and resolve the entities separately. In its April 2018 policy, the Financial Services Agency (FSA) says that, as a rule, SPE is the preferable choice for the four Japanese groups in scope¹⁷.

TLAC: requiring loss-absorbing capacity in advance

Total loss-absorbing capacity (TLAC) is an international standard under which a global systemically important bank (G-SIB) must have enough loss-absorbing and recapitalization capacity to keep critical functions running in resolution. The FSB published the final version on November 9, 2015¹⁸. The standard calls the unit to which resolution tools are applied the "resolution entity". It can be a parent company, a holding company, or an operating subsidiary¹⁹.

The minimum for a resolution entity is 16% of its risk-weighted assets (from January 1, 2019) and 18% (from January 1, 2022), and 6% of the denominator of the Basel III leverage ratio (2019) and 6.75% (2022). The Basel III capital buffers must be met separately²⁰.

Liabilities that cannot count include insured deposits, deposits with a remaining maturity of less than one year, liabilities arising from derivatives, and structured notes, which are bonds that embed derivatives. As a rule, an instrument that can count must rank to absorb losses before the excluded liabilities. This ranking is not required if several conditions are all met, including that the amount of excluded liabilities ranking equally with or below the instrument does not exceed 5% of the external TLAC that can count²¹.

A G-SIB headquartered in an emerging market economy that the FSB had designated as of the end of 2015 has to meet the minimum from January 1, 2025 (16% and 6%) and from January 1, 2028 (18% and 6.75%). However, if the outstanding amount of corporate bonds and similar instruments in that country exceeded 55% of its GDP within five years of the publication of the term sheet (November 2015), the application dates were brought forward. The amount was to be measured every November until November 2020²².

Consider a hypothetical example in which a group has risk-weighted assets of 50 trillion yen and total exposure, the denominator of the leverage ratio, of 150 trillion yen. The ratios are the same as in the Japanese notification.

Both standards must be met, so the binding requirement is the larger amount, 10.125 trillion yen (10,125 billion yen)²³.

In Japan, the FSA's policy, revised on April 13, 2018, covered four groups and said it would require domestic resolution entities to meet the minimum external TLAC. The levels for the three bank holding company groups among the four are in the table below, and Nomura Holdings has different application dates. In the United States, the Federal Reserve Board's rule requires the holding company of a G-SIB to hold external TLAC of at least the greater of 18% of risk-weighted assets and 7.5% of total leverage exposure. The figures are in the table below.

The Japanese policy also sets out the amount that may be counted from the advance funding of the deposit insurance system (2.5% or 3.5%)²⁴. The notification for bank holding companies has applied since March 31, 2019²⁶.

The regimes in Japan, the United States, and the United Kingdom

The outline of the regime differs by country. The table below compares Japan, the United States, and the United Kingdom.

There are two types of specific designation in Japan. Measure No. 1 (daiichigo sochi) applies to a financial institution that can fully repay its debts (excluding one that is insolvent). It consists of special oversight and, as needed, loans and subscriptions for shares. Measure No. 2 (dainigo sochi) applies to a financial institution that cannot fully repay its debts or is at risk of not doing so, and to one that has stopped payments or is at risk of doing so. It consists of special oversight and specified financial assistance (tokutei shikin enjo)²⁷. When creditors that are financial institutions of a firm under special oversight might collect their claims and make an orderly resolution difficult, the Corporation requests them not to exercise their rights until the necessary measures have been taken³³.

As an example of a resolution process that assumes SPE, the FSA sets out the following sequence. A domestic resolution entity (assumed to be the group's top holding company) absorbs losses incurred at a material subsidiary. After the Prime Minister makes a specific designation for Measure No. 2, the holding company transfers the business and other assets relating to systemically important transactions (including the shares of its main subsidiaries) to a specified successor financial institution. The holding company that remains is then resolved through legal insolvency proceedings¹⁷.

Consider a hypothetical example in which Group B has a holding company at the top. In the figure, "Successor" is a shortened name for the "specified successor financial institution" in the FSA's policy (one established by the Deposit Insurance Corporation of Japan).

Figure description

"Successor" here means only the specified successor financial institution. It is not the "successor financial institution" (shokei kinyu kikan) or the "successor financial institution and others" (shokei kinyu kikan-to) that the Deposit Insurance Act uses for other purposes.

The US regulation defines a rapid and orderly resolution as a reorganization or liquidation under the Bankruptcy Code that can be completed within a reasonable period and substantially mitigates the risk of serious adverse effects on US financial stability²⁹. A full plan includes an executive summary that describes the strategy for that resolution³⁴.

In the United Kingdom, a bridge bank (a bridge institution in the FSB's terms) is a company that is wholly or partly owned and controlled by the Bank of England. It is created to maintain access to critical functions and, in time, to sell the bank or its business³⁵.

What happens to derivatives

For derivatives, the contractual early termination rights are the focus. Subject to adequate safeguards, no right of set-off, early termination, or acceleration arises merely because resolution has started or resolution powers have been exercised, as long as the substantive obligations under the contract continue to be performed³⁶. For cases where such rights can still be exercised, the authorities should have the power to impose a stay³⁷. The mechanics of the stay and the rules in each country are covered in Resolution stay protocols.

Payments during resolution are also at issue, in addition to the transfer of business. The authorities should have the power to suspend payments to unsecured creditors and customers during resolution. Payments to a central counterparty and transactions in settlement systems are exceptions, and when the authorities use that power, the enforcement of eligible close-out netting and collateral arrangements must stay protected¹⁰.

Business must also continue. The authorities should have the power to require another company in the same group to keep providing critical services to the entity in resolution¹⁰. Financial institutions should be required to ensure that key service level agreements can be maintained through a crisis, and to include in their contracts clauses that prevent termination because of resolution or recovery³⁸. For financial market infrastructures such as settlement systems, the questions are whether the entity in resolution can remain a participant, whether a newly created bridge institution can gain access, and whether contracts cleared through a central counterparty can be moved to the bridge institution until access is in place³⁹. The Key Attributes call for resolution regimes that apply their goals and provisions to financial market infrastructures in a way that fits their roles⁴⁰. In its recovery plan, a financial institution should also estimate the additional collateral and similar amounts that may be required to stay a participant during a crisis, and identify options for securing them⁴¹.

TLAC excludes liabilities arising from derivatives from the liabilities that can count. Instruments that can count rank to absorb losses before the excluded liabilities. The US rule prohibits the holding company of a G-SIB from entering into a qualified financial contract (QFC) that is not credit-enhancing with a counterparty outside the group⁴². Under the Dodd-Frank Act definition, QFCs include securities contracts, commodity contracts, forward contracts, repurchase agreements, and swap agreements⁴³.

Booking models and resolvability

The booking entity whose books carry a trade affects how easily a firm can be resolved. A plan is expected to map critical functions to the entities that perform them. The plan is to include procedures for determining the value and marketability of core business lines, operations, and assets⁴⁴. The US regulation likewise requires the plan to map critical operations and core business lines to material entities, and to describe booking practices for trading and derivatives and the mapping of key hedges relating to transactions to entities⁴⁵.

Intragroup transactions are listed in the sources as factors that can make resolution harder. In assessing resolvability, the FSB document lists three points for assessing resolvability:⁴⁶.

• How far intragroup guarantees, booking practices, and cross-default clauses are used.
• Whether the documentation of intragroup transactions is in order and close to arm's length, and whether back-to-back transactions can be unwound if necessary (for example, to sell part of the business).
• Whether intragroup transactions create large imbalances of value among entities that make cooperation harder, and how quickly they can be unwound.

The assessment items also include the effect if interdependencies within the group have to be unwound in resolution⁴⁷.

The result of the assessment can also lead to a review of the structure. Where necessary to reduce the complexity and cost of resolution, the authorities should have the power to require a financial institution to change its practices, structure, or organization. The Key Attributes also encourage considering separating critical functions into legally and operationally independent entities, to protect them from problems in the rest of the group⁴⁸. The debate on changing booking models sits in this context. How to choose an entity is covered in Choosing the Booking Entity.

Topics not covered

The regime in the European Union, the statutes and filing frequency in Japan and the United Kingdom, and the resolution of a central counterparty itself are not covered on this page.

Notes

1. Financial Services Agency, "金融システムの安定に資する総損失吸収力（TLAC）に係る枠組み整備の方針について" (Policy on Establishing a Framework for Total Loss-absorbing Capacity (TLAC) Contributing to the Stability of the Financial System; in Japanese; published April 15, 2016, revised April 13, 2018), preamble (the unnumbered first page). No official English translation was checked. ↩

2. Financial Stability Board, "Key Attributes of Effective Resolution Regimes for Financial Institutions" (revised version, April 25, 2024), Foreword (page 1) and Preamble (page 4). ↩

3. Key Attributes, 11.5 (recovery plan, page 17) and I-Annex 4, 1.8 (resolution plan, page 42). ↩

4. Key Attributes, I-Annex 4, 1.6 (responsibility for the recovery plan and review by the authorities, page 41) and 1.9 (responsibility for the resolution plan, page 42). ↩ ↩²

5. Key Attributes, I-Annex 4, 1.5 (page 41) and 3.1 (page 45). ↩

6. Key Attributes, 3.1 (page 7). ↩ ↩²

7. Key Attributes, I-Annex 4, 1.4 (page 41). ↩

8. Key Attributes, I-Annex 4, 1.12 (page 42). ↩

9. Key Attributes, 11.2 and 11.3 (page 17) and 11.10 (page 18). ↩

10. Key Attributes, 3.2 (pages 8 to 9). Transfer of business is item (vi), bridge institution is (vii), asset management vehicle is (viii), bail-in is (ix), liquidation is (xii), suspension of payments is (xi), and continued provision of critical services by other companies in the same group is (iv). ↩ ↩² ↩³ ↩⁴ ↩⁵

11. Key Attributes, 3.3 (page 9). ↩ ↩²

12. Key Attributes, 3.4 (pages 9 to 10). ↩

13. Key Attributes, 3.5 (page 10). ↩

14. Key Attributes, 3.8 (pages 10 to 11). ↩

15. Key Attributes, 5.1 and 5.2 (page 12). ↩

16. Key Attributes, 6.1 and 6.2 (page 13). ↩

17. Financial Services Agency, "金融システムの安定に資する総損失吸収力（TLAC）に係る枠組み整備の方針について" (Policy on Establishing a Framework for Total Loss-absorbing Capacity (TLAC) Contributing to the Stability of the Financial System; in Japanese; our translation of the title; published April 15, 2016, revised April 13, 2018), section II, 3 (pages 3 to 4: the description of SPE and MPE, the approach to the four groups, and steps 1 to 4 of the example sequence). The description of SPE and MPE is given together with the name of the FSB document (July 2013) that the policy cites. ↩ ↩² ↩³

18. Financial Stability Board, "Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-absorbing Capacity (TLAC) Term Sheet" (November 9, 2015), cover page (date) and Sections 1 and 2. ↩

19. TLAC Term Sheet, Section 3. ↩

20. TLAC Term Sheet, Section 4. ↩

21. TLAC Term Sheet, Section 10 (liabilities that cannot count) and Section 11 (ranking; the cases in which the ranking is not required are on pages 15 to 16). ↩

22. TLAC Term Sheet, Section 21 (application dates for G-SIBs headquartered in emerging market economies, and the conditions that bring the dates forward). ↩

23. A calculation example. Risk-weighted assets of 50 trillion yen × 18% = 9 trillion yen. Total exposure of 150 trillion yen × 6.75% = 10.125 trillion yen (10,125 billion yen). It does not consider the amount counted from the advance funding of the deposit insurance system, or the detailed definitions of the denominator and numerator. ↩

24. Financial Services Agency, "金融システムの安定に資する総損失吸収力（TLAC）に係る枠組み整備の方針について" (Policy on Establishing a Framework for Total Loss-absorbing Capacity (TLAC) Contributing to the Stability of the Financial System; in Japanese; our translation of the title; revised April 13, 2018), section II, 4 (1) (i) (pages 4 to 6). The application dates for Nomura Holdings are different (March 31, 2021 and March 31, 2024). ↩ ↩² ↩³

25. 12 CFR 252.63(a) (Electronic Code of Federal Regulations as of October 1, 2026). ↩

26. Financial Services Agency, "銀行法第五十二条の二十五の規定に基づき銀行持株会社が（略）総損失吸収力及び資本再構築力に係る健全性を判断するための基準であって銀行の経営の健全性の判断のために参考となるべきもの" (Standards for judging soundness in relation to total loss-absorbing capacity and recapitalization capacity, set by a bank holding company under Article 52-25 of the Banking Act as a reference for judging the soundness of a bank; in Japanese; our translation of the title; Financial Services Agency Notification No. 9), Article 1, items 10 and 11, the appended table, and Supplementary Provisions Article 1 (applies from March 31, 2019 [Heisei 31]). The amount that may be counted is in Article 2, paragraph 2. ↩

27. "預金保険法" (Deposit Insurance Act, Act No. 34 of 1971; in Japanese; no official English translation was checked), Article 126-2, paragraph 1, items 1 and 2. The English terms for the Act's concepts on this page (specific designation [tokutei nintei], special oversight [tokubetsu kanshi], Measure No. 1 and No. 2 [daiichigo sochi, dainigo sochi], specified financial assistance [tokutei shikin enjo], and specified successor bank [tokutei shokei ginko]) are our own translations of the Japanese terms, not those of an official translation. ↩ ↩²

28. Deposit Insurance Act, Article 126-3 (special oversight by the Corporation) and Article 126-34, paragraph 1 and paragraph 3, item 1 (a specified successor bank is a bank established as a subsidiary of the Corporation that takes over debts and similar liabilities through a specified business transfer or similar transaction). ↩

29. 12 CFR 243.2, definition of "Rapid and orderly resolution" (as of October 1, 2026). ↩ ↩²

30. 12 CFR 243.4(a) (biennial filers, which include holding companies of G-SIBs), paragraphs (3), (4), and (5). A plan is due by July 1 of each year in which one is required. ↩

31. 12 CFR 252.64(a)(4) (as of October 1, 2026). It lists the receivership proceeding under Title II of the Dodd-Frank Act (12 U.S.C. 5381 to 5394), distinguishing it from other proceedings. ↩

32. Banking Act 2009, section 1, subsections (2) and (3) (the version on legislation.gov.uk that came into force on January 19, 2026). ↩ ↩²

33. Deposit Insurance Act, Article 126-14, paragraph 1. ↩

34. 12 CFR 243.5(b)(1) (as of October 1, 2026). The executive summary of a full plan describes the elements of the strategy for rapid and orderly resolution in the event of material financial distress or failure. ↩

35. Banking Act 2009, section 12 (bridge bank), subsections (1) and (1A). ↩

36. Financial Stability Board, "Key Attributes of Effective Resolution Regimes for Financial Institutions" (revised version, April 25, 2024), 4.2 (page 11). ↩

37. Key Attributes, 4.3 (page 11). ↩

38. Key Attributes, 11.7 (page 18). ↩

39. Key Attributes, I-Annex 3, 4.7 and 4.8 (page 37). ↩

40. Financial Stability Board, "Key Attributes of Effective Resolution Regimes for Financial Institutions" (revised version, April 25, 2024), 1.2 (page 6). ↩

41. Key Attributes, I-Annex 4, 3.2 (page 45). ↩

42. 12 CFR 252.64(a)(3) (as of October 1, 2026). The definition of a qualified financial contract is in another section of the regulation. ↩

43. 12 U.S.C. 5390(c)(8)(D)(i) (the text of the United States Code published by the Legal Information Institute, Cornell Law School). 12 CFR 252.81 gives the term the same meaning as this provision. ↩

44. Key Attributes, I-Annex 4, 2.3 (i) and (viii) (pages 44 to 45). ↩

45. 12 CFR 243.5(e)(1)(ii), (e)(6), and (e)(7) (as of October 1, 2026; the contents of a full plan). ↩

46. Financial Stability Board, "Key Attributes of Effective Resolution Regimes for Financial Institutions" (revised version, April 25, 2024), I-Annex 3, 4.5 and 4.6 (page 37). ↩

47. Key Attributes, 10.2 (ii) (page 16). ↩

48. Key Attributes, 10.5 (page 17). ↩

49. Key Attributes, I-Annex 4, 1.19 (page 43). ↩

50. Key Attributes, I-Annex 3, 4.12 (page 38). ↩