In a ‘dear CEO’ letter, the PRA said it reviewed the recovery planning capabilities of smaller lenders over the last 18 months and found that some firms were not calculating this “effectively” or “adequately showcasing it in an understandable and usable way”. 

“Our review found that a number of firms did not use scenarios of sufficient severity, which will limit the effectiveness and value of the testing,” the PRA stated. 

It said this reduced the accuracy and reliability of such calculations. 

The PRA said events over the last two years had highlighted the importance of resolvability and recovery planning among banks and building societies. 

It added: “It is useful for firms to understand their recovery capacity under a range of different stresses.

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“A well-calculated recovery capacity analysis gives firms and their boards an insight into the strengths and weaknesses of their capital- and liquidity-generating capabilities under various scenarios.” 

The regulator said it would engage with firms and trade associations to discuss the findings of the letter in the second half of this year and use it for discussion at the June CEOs conference. 

Lenders will be expected to update their recovery plans to meet the expectations of Supervisory Statement SS9/17, which relates to recovery planning. 

From October this year, smaller lenders will also be expected to meet the rules of the PRA’s new policy statement PS5/24 and its supervisory statement SS2/24, which details expectations for solvent exit planning.