‘Sound recovery plan requires commitment from the top’

Date 28 February 2013

Drawing up a recovery plan is a useful exercise, according to Hans Grisel (ING) and Barry Terpstra (Rabobank). A dual interview with two senior banking officers.

Gedrag en cultuur

In response to a request from DNB, the leading Dutch banks have now drawn up their recovery plans. This year, it’s the turn of the medium-sized banks. A recovery plan outlines the measures a bank can take to remain solvent in the event of a crisis. Two project managers, Hans Grisel, Head of Non-Financial Risk at ING Bank, and Barry Terpstra, Project Manager Group Risk Management at Rabobank, describe the ins and outs of compiling such plans.  

Barry Terpstra (Rabobank)

What did you learn in drawing up the recovery plans?
Barry Terpstra: ‘The request itself is what struck us initially: it seems counterintuitive to ask a bank that’s solvent to compile a recovery plan. It takes some time to fully absorb what you’re being asked to do and get down to work on it. After all, we’re always taking measures to manage a wide variety of risks – it’s in every bank’s DNA. But a recovery plan isn’t about simply responding to the failure of operational processes or accommodating unforeseen events. It’s about dealing with financial meltdown. This forces you to consider whether your crisis management measures would be adequate to fully cope with such a contingency. Looking back, I realise that if the regulator hadn’t asked us to put together a recovery plan, we’d never have approached it in such a structured way. By drafting such a plan, you create a shared and widely supported picture of how your bank is organised, what is relevant or might be obstructed in a crisis situation, and what you can do if a crisis occurs. Now that the plan is complete, we have an instrument that enables us to respond more quickly if and when we need to. Working on a recovery plan also enables you to make improvements in the crisis management and organisation of the bank. These are major benefits.’

Hans Grisel (ING)

Hans Grisel: ‘It was a useful exercise. What you’re doing is in fact creating a plan to address a situation that you believe to be extremely unlikely to occur. But in today’s world and age, making a recovery plan is vital. It forces you to think in a highly structured way about all the measures you could possibly apply in crisis situations. The recovery plan has given us a menu of crisis measures so now we won’t have to work out what to do if a crisis occurs. We recently ran an exercise to test our action plan, and it went very well. The challenge is to keep it up-to-date and "alive" throughout the bank. It helps that various statistics and indicators are discussed each month by the Executive Board. That keeps it high on the agenda.’ 
How was the experience of working with DNB?
Hans Grisel: ‘Very positive. DNB gave us the push we needed. There was a point at which they said they’d seen several versions of the plan and there were still many unresolved items. So they urged us to round things off as soon as possible. We responded by putting more people onto it and pulled all the final details together in close consultation with DNB. The supervisor had also appointed a dedicated team, with whom we held regular talks. It all went very well.’
Barry Terpstra: ‘The supervisor challenged us to go further than we’d initially planned, which was a good incentive for us. We also gave them useful feedback. It was the first time DNB asked the banks to compile a recovery plan: by actually going through the process, they now have a better idea of what is and isn’t useful. That will benefit the medium-sized banks. For example, one of the things DNB asked us to do was to define the various stages of being solvent. It was a good question, of course, since the more serious the situation, the more radical and unconventional the measures that might be applied. This prompted a detailed discussion where we sat down together and worked out how the indicators could be made sufficiently concrete as yardsticks for a healthy bank, without making them overly rigid if the situation changed too much. In short, it was a lengthy process during which we didn’t make things particularly easy for each other but from which we both emerged satisfied.’  
What advice would you give other banks?
Hans Grisel: ‘I find it difficult to give advice, but I can tell you what worked well for us. First of all, responsibility for the recovery plan was given to a member of the Executive Board (the CRO). This gave the project the required "weight" in the organisation and the right mandate for those working on it. We also set up a steering committee of senior representatives from the relevant departments, including the Chief Risk Officer and vice chairman of the Executive Board. The overall coordinator was someone who was neutral in respect of the other stakeholders, monitored content and drew together the whole initiative. Looking back, I realise it was useful for the recovery plan to be given the full attention of the Executive Board and to be coordinated by people with the right capabilities and sufficient time to do the work involved. If you get this right, it pays dividends. After all, it’s a huge undertaking. In addition to the employees who were tasked with overall coordination, we also had several people working fulltime to oversee the individual workflows and to combine all the input into an accessible and cohesive whole.’
Barry Terpstra: ‘My advice is: make sure the people who are carrying out the project are given enough time. You need to take that very seriously. If you come up with easy answers too soon, you may as well bin them straightaway because they’re almost certainly no good. It means you haven’t challenged yourself enough. Another piece of advice: carefully structure the project so that it gets sufficient endorsement from the management. We reported to a steering group chaired by Mr Bruggink, our CFO, and this gave us a direct link to the Executive Board. The steering group brought together all the disciplines that were relevant in crisis situations, as well as representatives from the main business units. This is vital for ensuring the success of the project.’  
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