Paper

Recovery Planning

Do financial institutions have adequate contingency plans to recover from the effects of the pandemic?

Recovery planning is not an entirely new concept – financial institutions have always had contingency plans to enable them to respond to, and recover from, adverse events. However, the global financial crisis (GFC) in 2007-2008 revealed that many financial institutions had inadequate recovery plans. Different types of recovery were often planned for separately; recovery plans were not discussed at board level, or sometimes even by a financial institution’s executive committee; recovery planning was based on insufficiently severe assumed stresses; many financial institutions planned only for a firm-specific shock while the rest of the market continued normally; and where market-wide shocks were considered, many financial institutions assumed that they would benefit from a “flight to quality.”

One element of the post-GFC regulatory reform agenda was therefore to introduce new and tougher standards for recovery planning by financial institutions across all financial sectors. The objective was to enhance the resilience of financial institutions through recovery planning for more severe and wide-ranging adverse scenarios. This Toronto Centre Note describes these standards for recovery planning, discusses how supervisors can monitor whether financial institutions are meeting these standards, and outlines the supervisory actions that can be taken by supervisors to improve a financial institution’s recovery planning.

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