Critical Functions of Credit Institutions

The continuity of the critical functions of the credit institution in resolution is one of the main objectives of resolution. The objective of maintaining the continuity of critical functions is to protect financial stability and the real economy, and it therefore plays a key role in the recovery and resolution planning process. Critical functions may include deposit, borrowing and lending services, payment, clearing, custody and settlement services, market financing activities, capital market activities and investment activities.

In assessing the credit institution's ability to be resolved, the Central Bank shall take into account whether the chosen strategy ensures the continuity of critical functions and whether the authority to remove impediments to resolvability relates to critical functions. Similarly, in the bail-in tool scenario, liabilities could be excluded from the framework of the bail-in, where an exclusion is strictly necessary and proportionate to achieve continuity of critical functions. Critical functions also become relevant in the operation of the bridge credit institution's tool because the bridge credit institution should maintain critical functions.       

Critical functions need to be identified in a two-step process: first, credit institutions perform self-assessment when establishing their recovery plans. Second, the Central Bank analyses the recovery plans of individual credit institutions to ensure consistency and coherence in the approaches used by credit institutions. Since it is important for the Central Bank, in terms of maintaining financial stability, to clearly define and preserve critical functions, the Central Bank makes, in the implementation of the resolution function, the final decision.