Guide on the approach for the recognition of institutional protection schemes (IPS) for prudential purposes.
Date: 2016-08-09
Institutions: European Central Bank
Subjects: European Central Bank, banking policy, banking supervision, credit institution, financial control, user guide

Public consultation 

Guide 

on  the approach for the recognition 
of institutional  protection schemes 
(IPS) for prudential  purposes 

July 2016

 
 
 
 
 
 
1 

Introduction 

1.  This document sets out the ECB’s approach concerning the assessment of the 

eligibility of institutional protection schemes (IPSs) for prudential supervisory 
purposes. It aims to ensure coherence, effectiveness and transparency 

regarding the policy that will be applied when assessing IPSs in accordance 
with Regulation (EU) 575/2013 of the European Parliament and of the Council 1 
(the Capital Requirements Regulation), in the context of European banking 
supervision. 

2.  An IPS is defined in the Capital Requirements Regulation (CRR) as a 

contractual or statutory liability arrangement which protects its member 
institutions and in particular ensures that they have the liquidity and solvency 
needed to avoid bankruptcy where necessary (Article 113(7) of the CRR, first 
sentence). The competent authorities may, in accordance with the conditions 
laid down in the CRR, waive selected prudential requirements or allow certain 
derogations for IPS member institutions. Currently, IPSs are recognised for 
CRR purposes in three countries participating in the Single Supervisory 
Mechanism (SSM): Austria, Germany and Spain. The relevance of IPSs is 
significant in absolute terms, given that about 50% of credit institutions in the 
euro area are members of an IPS, representing around 10% of the total assets 
of the euro area banking system. In most cases, both significant institutions and 
less significant institutions subject to ECB Banking Supervision are members of 
the same IPS. The two main sectors covered by IPSs in the three relevant euro 
area countries are cooperative and savings banks. One of the main features of 
those sectors is the high degree of autonomy and independence of the 
individual credit institutions. This means that IPSs – notwithstanding the fact 
that they ensure the liquidity and solvency of their member institutions – are not 
the same as consolidated banking groups. 

3.  Article 113(7) of the CRR provides that the ECB may grant permission to credit 
institutions to apply a 0% risk weight to exposures to other counterparties which 
are members of the same IPS, with the exception of exposures giving rise to 

Common Equity Tier 1, Additional Tier 1 and Tier 2 items. This represents the 
key decision on the eligibility of an IPS for prudential supervisory purposes. As 

a direct consequence of permission being granted under Article 113(7), 
institutions may permanently use the “standardised approach” for those 

exposures in accordance with Article 150(1)(f) of the CRR. In addition, the 
exposures in question are exempt from the application of Article 395(1) of the 

CRR on large exposure limits. Furthermore, the application of Article 113(7) is 
one of the pre-conditions for granting additional waivers to IPS members, 

namely: (i) exemption from the deduction of holdings in own funds as provided 

1   Regulation (EU) No 575/2013  of  the European  Parliament and  of  the Council of  26 June 2013 on 

prudential  requirements f or credit institutions and inv estment f irms and amending Regulation  (EU) No 
648/2012  (OJ L 176, 27.6.2013, p. 1). 

Guide on the approach for the recognition of  
institutional protection schemes (IPS) for prudential purposes 

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for in Article 49(3) of the CRR; (ii) the granting of a liquidity waiver as provided 
for in Article 8(4) of the CRR; and (iii) the application of lower outflow and higher 
inflow percentages for LCR calculation (Articles 422(8) and 425(4) of the CRR 
taken in conjunction with Articles 29 and 34 of the LCR Delegated Act2) 3. 

4.  This document specifies how the ECB will assess the compliance of IPSs and 

their member institutions with the conditions laid down in the CRR in order to 
grant them permission within the meaning of Article 113(7) of that Regulation. 
These specifications will be used by the joint supervisory teams (JSTs) when 

assessing individual applications by significant institutions that are members of 
an IPS. 

5.  The specifications do not establish new regulatory requirements and they 

should not be construed as being legally binding rules. Rather, they provide 
additional guidance on how the ECB will assess Article 113(7) applications. The 

final decision by the ECB to grant permission in accordance with that Article will 
be taken on a case-by-case basis. This decision will be based on a holistic 
analysis including all aspects covered by the conditions set out in the CRR as 
well as additional information stemming from the ongoing supervision of the 
credit institutions that are members of the IPS. To facilitate communication with 
the supervisory authorities (the ECB and – where the members of the IPS 
include less significant institutions – the national competent authorities (NCAs)) 
in the context of that assessment, the IPS member institutions should provide a 
single point of contact. 

6.  Before carrying out a detailed supervisory assessment on the basis of 

paragraphs (a) to (i) of Article 113(7) of the CRR, the ECB will first assess 
whether the IPS can provide sufficient support in the event that a member 
institution faces severe financial constraints regarding both liquidity and/or 
solvency. Article 113(7) of the CRR does not determine a specific point in time 
where support to ensure liquidity and solvency must be provided in order to 
avoid insolvency. By making proactive and timely interventions the IPS should 
ensure that its member institutions abide by the regulatory own funds and 
liquidity requirements. If such preventive measures are not sufficient the IPS 
needs to decide on material or financial support. Intervention by the IPS is 

deemed to be triggered, at the latest, where there is no reasonable prospect 
that any alternative measures, including the recovery measures provided for in 

the recovery plan, would prevent the failure of that institution. As part of its 
contractual or statutory arrangements, the IPS should have in place a broad 

range of measures, processes and mechanisms which make up the framework 
under which it operates. This framework should comprise a suite of available 

actions ranging from less intrusive measures, such as closer monitoring of the 

2   Commission Delegated  Regulation (EU) 2015/61 of  10 October 2014 to supplement Regulation (EU) 

No 575/2013 of  the European  Parliament and the Council with regard  to liquidity  cov erage requirement 
f or Credit Institutions. 

3   The  ECB’s  approach  to  the  exercise  of   those  options  and  discretions  has  been  set  out  in  the  ECB 

Guide  on options and discretions av ailable in Union law, published on 24 March 2016. 

Guide on the approach for the recognition of  
institutional protection schemes (IPS) for prudential purposes 

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member institutions on the basis of relevant indicators and additional reporting 
requirements, to more substantial measures that are proportionate to the 
riskiness of the beneficiary IPS member institution and the severity of its 

financial constraints, including direct capital and liquidity support.  

7.  The way the specifications are set out in this document mirrors the structure of 
Article 113(7) of the CRR. The specifications should therefore be read in 
conjunction with the relevant legal text.  

8.  The terms used in this document have the same meaning as defined in the 

CRR, Directive (EU) 2013/36/EU of the European Parliament and the Council 
(CRD IV) 4, and Council Regulation (EU) No 1024/2013 (the SSM Regulation)5. 

9.  The document sets out the approach to be followed by the ECB in carrying out 
its supervisory tasks. If, however, in specific cases there are factors that justify 
departure from these specifications, the ECB is empowered to take a decision 
to do so, provided that clear and sufficient reasons are provided. The rationale 
behind this decision to diverge from the established approach must also be 
compatible with the general principles of EU law, in particular equal treatment, 
proportionality and the legitimate expectations of supervised entities. This is 
consistent with the established case-law of the Court of Justice of the EU, 
where internal guidance, such as this document, is defined as “rules of practice” 
from which EU institutions may depart in justified cases6. 

10.  The ECB reserves the right to review the specifications set out in this document 

to take account of changes in legislative provisions or specific circumstances, 
as well as the adoption of specific delegated acts that may regulate a specific 
policy issue in a different way. Any  changes will be made public and take due 
account of the principles of legitimate expectations, proportionality and equal 
treatment referred to above. 

11.  The ECB is responsible for the effective and consistent functioning of the SSM 

and, as part of its oversight tasks, should ensure the consistency of supervisory 
outcomes. As IPSs typically consist of both significant institutions and less 
significant institutions, it is important to ensure the consistent treatment of 
institutions belonging to IPSs across the SSM area. For IPSs consisting of both 
significant and less significant institutions, it is important that both the ECB, 

4   Directiv e (EU) 2013/36/EU of  the European  Parliament  and of  the Council of  26 June 2013  on access 
to the activ ity  of credit institutions and the prudential  superv ision of  credit institutions and inv estment 
f irms. 

5   Council Regulation (EU) No 1024/2013  of  15 October 2013  conf erring specif ic tasks on the European 
Central Bank concerning policies relating to the prudential superv ision of  credit institutions (OJ L 287, 
29.10.2013, p. 63). 

6   See paragraph  209 of  the judgment of  the Court of  Justice of  the EU of  28 June 2005 in Joined  Cases 
C-189/02, C-202/02, C-205/02 to C-208/02 and  C-213/02: “The  Court has already  held, in a judgment 
concerning internal  measures adopted by  the administration, that although  those measures may  not be 
regarded  as rules of  law which the administration is alway s bound  to observ e, they  nev ertheless f orm 
rules of  practice f rom which the administration may  not depart in an indiv idual case without  giv ing 
reasons that are compatible with  the principle  of  equal treatment. Such measures theref ore constitute a 
general  act and the of f icials and other staf f  concerned may  inv oke their illegality  in support of  an action 
against the indiv idual measures taken on  the basis of  the measures.” 

Guide on the approach for the recognition of  
institutional protection schemes (IPS) for prudential purposes 

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which is responsible for the supervision of significant institutions, and the NCAs, 
which are responsible for the supervision of less significant institutions, use 
analogous specifications for the eligibility assessment. In addition, for IPSs 

consisting solely of less significant institutions, it is advisable, for consistency 
reasons, that similar assessment criteria are used. In cooperation and 
agreement with the NCAs, the specifications included in this document will be 
extended to the supervision of less significant institutions by the NCAs.  

12.  The decisions by the competent authority to grant permission within the 

meaning of Article 113(7) of the CRR are directed at individual institutions that 
are members of an IPS. For IPSs whose members are composed of significant 
and less significant institutions, a process will be set up which will ensure 
sufficient coordination and consultation between the ECB and the NCAs, which 

are the authorities competent to make IPS-related decisions including the 
granting of additional waivers or derogations. Coordination between the ECB 
and the NCAs will also be ensured with regard to the ongoing monitoring of 
IPSs. 

13.  These specifications will be included in the ECB Guide on options and 

discretions available in Union law that was published on 24 March 2016. 

Guide on the approach for the recognition of  
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2 

Specifications for the assessment under 
Article 113(7) of the CRR  

This section sets out the specific criteria the ECB will follow when assessing 
individual applications for the prudential permission referred to in Article 113(7) of the 
CRR by supervised credit institutions that are members of an IPS.  

The ECB will grant permission to institutions, on a case-by-case basis, not to apply 
the requirements of Article 113(1) of the CRR to exposures to counterparties with 

which the institution has entered into an institutional protection scheme (IPS) and to 
assign a 0% risk weight to those exposures, provided that the conditions set out in 
Article 113(7) of the CRR are fulfilled. 

For the purposes of assessing whether to grant this permission, the ECB will 
consider the following factors. 

• 

• 

In accordance with Article 113(7)(a) taken in conjunction with Article 
113(6)(a) and (d) of the CRR, the ECB  will verify whether: 

(i) 

the counterparty is an institution, financial institution or ancillary services 
undertaking subject to appropriate prudential requirements;  

(ii) 

the IPS members requesting the permission are established in the same 
Member State. 

For the purposes of assessing compliance with the condition  laid down in 
Article 113(7)(a) taken in conjunction with Article 113(6)(e) of the CRR, 
namely that there is no current or foreseen material practical or legal 
impediment to the prompt transfer of own funds or repayment of liabilities 
from the counterparty to the institution:   

(i) 

the shareholding and legal structure of the IPS members does not hamper 
the transferability of own funds or repayment of liabilities; 

(ii) 

the formal decision-making process regarding the transfer of own funds 

between IPS members ensures prompt transfers; 

(iii)  the by-laws of the IPS members, any shareholders’ agreement, or any 

other known agreements do not contain any provisions that may obstruct 

the transfer of own funds or repayment of liabilities by the counterparty; 

(iv)  there have been no previous serious management difficulties or corporate 
governance issues related to the IPS members that might have a negative 

impact on the prompt transfer of own funds or the repayment of liabilities;  

Guide on the approach for the recognition of  
institutional protection schemes (IPS) for prudential purposes 

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(v)  no third parties 7 are able to exercise control over or prevent the prompt 

transfer of own funds or repayment of liabilities; 

(vi)  any indications from the past regarding flows of funds between IPS 

members which demonstrate the ability to promptly transfer funds or repay 

liabilities will be taken into account; 

(vii)  the crisis management intermediation role and responsibility of the IPS to 

provide funds to support troubled members is considered key.  

•  When assessing compliance with the condition  laid down in Article 

113(7)(b) of the CRR,  namely that arrangements are in place which ensure 
that the IPS is able to grant the support it has committed to provide from 
funds readily available to it, the ECB  will verify whether : 

(i) 

the IPS arrangements include a broad range of measures, processes and 
mechanisms which make up the framework under which the IPS operates. 
This framework should comprise a series of possible actions, ranging from 
less intrusive measures to more substantial measures that are 
proportionate to the riskiness of the beneficiary IPS member institution and 
the severity of its financial constraints, including direct capital and liquidity 
support. The IPS support may be conditional – for example upon the 
implementation of certain recovery and restructuring measures by the 
respective institution; 

(ii) 

the governance structure of the IPS and the process for making decisions 
on support measures allow support to be provided in a timely manner;  

(iii)  a clear commitment exists on the part of the IPS to provide support when – 

despite previous monitoring of risks and early intervention measures – an 
IPS member is or is likely to become insolvent or illiquid. In addition, the 
IPS should ensure that its member institutions abide by the regulatory own 
funds and liquidity requirements; 

(iv)  the IPS conducts stress tests at regular intervals to quantify potential 

capital and liquidity support measures; 

(v) 

the risk-absorbing capacity of the IPS (consisting of paid-up funds, 
potential ex-post contributions and comparable commitments) is sufficient 

to cover potential support measures taken in respect of its members; 

(vi)  an ex-ante fund has been created to ensure that the IPS has funds for 

support measures readily available, and  

(a)  contributions to the ex-ante fund follow a clearly defined framework; 

7   Third  parties are any  party  that is not the parent, a subsidiary , a member of  the decision-making bodies 

or a shareholder  of  an IPS member institution. 

Guide on the approach for the recognition of  
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(b) 

the funds are invested only in liquid and secure assets that may be 
liquidated at any time and whose value does not depend on the 
solvency and liquidity position of the members of the IPS and their 

subsidiaries; 

(c) 

for the determination of the minimum target amount of the ex-ante 
fund the IPS stress test results are considered;  

(d)  an adequate floor/minimum amount for the ex-ante fund is 
determined to ensure the prompt availability of the funds. 

IPSs may be recognised as Deposit Guarantee Schemes pursuant to the 
DGS Directive 8 and may be allowed under the conditions set out in the 
respective national laws to use the available financial means for alternative 
measures in order to prevent the failure of a credit institution. In this case 

the ECB will consider the available financial means when assessing the 
availability of funds to grant support, taking into account the different 
purposes of an IPS (which aims to protect its members) and a deposit 
guarantee scheme (whose key task is to protect depositors against the 
consequences of the insolvency of a credit institution). 

• 

Article 113(7)(c) of the CRR  provides that the IPS must have at its disposal 
suitable and uniformly stipulated systems for the monitoring  and 
classification of risk, which give a complete overview of the risk situation 
of all the individual  members and of the IPS as a whole, with 
corresponding possibilities to intervene; and that those systems must 
suitably monitor defaulted exposures in accordance with Article 178(1) of 
the CRR.  In assessing compliance with this condition,  the ECB  will 
consider whether: 

(i) 

the member institutions of the IPS are obliged to provide the main body 
responsible for the management of the IPS with up-to-date data on their 
risk situation at regular intervals, including information on their own funds 
and own funds requirements; 

(ii) 

the corresponding appropriate data flows and IT systems are in place; 

(iii)  the main body responsible for the management of the IPS defines 

uniformly stipulated standards and methodologies for the risk management 

framework to be applied by the IPS members; 

(iv)  for the purposes of the monitoring and classification of risk by the IPS 
there is a common definition of risks, the same risk categories are 

monitored for all institutions, and the same confidence level and time 
horizon is used for the quantification of risks; 

8   Directiv e 2014/49/EU of  the European  Parliament and of  the Council of  16 April 2014 on deposit 

guarantee  schemes (OJ L 173, 12.06.2014, p. 149-178). 

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(v) 

the IPS systems for the monitoring and classification of risks classify the 
IPS members according to their risk situation, i.e. the IPS should define 
different categories to which to assign its members in order to allow early 

intervention; 

(vi)  the IPS has the possibility to influence the risk situation of the IPS member 
institutions by issuing instructions, recommendations, etc. to them, to 
restrict certain activities or to require a reduction of certain risks, for 
example.  

•  When assessing compliance with the condition  laid down in Article 

113(7)(d) of the CRR,  namely that the IPS conduct its own risk review 
which is communicated to the individual  members, the ECB  will consider 

whether: 

(i) 

the IPS assesses at regular intervals the risks and vulnerabilities of the 
sector to which its member institutions belong; 

(ii) 

the results of the risk reviews as performed by the main body responsible 
for the management of the IPS are summarised in a report or other 
document and are distributed to the relevant decision-making bodies of the 
IPS and/or the members of the IPS shortly after they have been finalised; 

(iii)  individual members are informed of their risk classification by the IPS as 

required by Article 113(7)(c). 

• 

Article 113(7)(e) of the CRR provides that the IPS must draw up and 
publish  on an annual basis a consolidated report comprising the balance 
sheet, the profit and loss account, the situation report and the risk report, 
concerning the institutional  protection scheme as a whole, or a report 
comprising the aggregated balance sheet, the aggregated profit and loss 
account, the situation report and the risk report, concerning the 
institutional  protection scheme as a whole. When assessing compliance 
with this condition,  the ECB  will verify whether:  

(i) 

the consolidated or aggregated report is audited by an independent 
external auditor on the basis of the relevant accounting framework or, if 

applicable, the aggregation method; 

(ii) 

the external auditor is required to provide an audit opinion; 

(iii)  all members of the IPS, the subsidiaries of all IPS members, any 

intermediary structures such as holding companies and the special entity 

steering the IPS itself (if it is a legal entity) are included in the scope of 
consolidation/aggregation; 

(iv)  in cases where the IPS draws up a report comprising an aggregated 

balance sheet and an aggregated profit and loss account, the aggregation 
method can ensure that all intragroup exposures are eliminated. 

Guide on the approach for the recognition of  
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• 

• 

• 

In accordance with Article 113(7)(f) of the CRR, the ECB  will verify 

whether: 

(i) 

the contract or legal text of the statutory arrangement includes a provision 
according to which members of the IPS are obliged to give advance notice 

of at least 24 months if they wish to end the IPS. 

Article 113(7)(g) of the CRR provides that the multiple use of elements 
eligible for the calculation of own funds (hereinafter referred to as 

“multiple gearing”) as well as any inappropriate creation of own funds 
between the members of the institutional protection scheme must be 
eliminated. For  the purposes of assessing compliance with this 
requirement, the ECB  will verify whether:  

(i) 

the external auditor who is responsible for the audit of the consolidated or 
aggregated financial report can confirm that multiple gearing, as well as 
any inappropriate creation of own funds between the members of the 
institutional protection scheme, has been eliminated; 

(ii)  any transactions by the members of the IPS have led to the inappropriate 
creation of own funds at the individual level, sub-consolidated level or 
consolidated level. 

The ECB’s  assessment of compliance with the condition  laid down in 
Article 113(7)(h) of the CRR,  namely, that the IPS must be based on a 
broad membership of credit institutions  of a predominantly homogeneous 
business profile, will be based on the following:   

(i) 

the IPS should have sufficient members (among the institutions that are 
potentially eligible for membership) to cover any support measures it may 
have to implement; 

(ii)  criteria to be considered within the assessment of the business profile are: 
business model, business strategy, size, customers, regional focus, 
products, funding structure, material risk categories, sales cooperation and 
service agreements with other IPS members, etc.; 

(iii)  the different business profiles of the IPS member institutions should allow 
the monitoring and classification of their risk situations using the uniformly 

stipulated systems that the IPS has in place (Article 113(7)(c) of the CRR); 

(iv)  IPS sectors are often based on collaboration, meaning that central 

institutions and other specialised institutions in the network offer products 

and services to other IPS members. When assessing the homogeneity of 
business profiles the ECB will consider the extent to which the business 

activities of the IPS members are related to the IPS network (products and 
services provided to local banks, services to shared customers, capital 
market activities etc.).  

Guide on the approach for the recognition of  
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© European Central Bank, 2016 

Postal address 
Telephone 
Website 

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+49 69 1344 0 
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ISBN 
DOI 
EU catalogue No 

978-92-899-2435-1 (pdf) 
10.2866/470907 (pdf) 
QB-04-16-568-EN-N (pdf) 

Guide on the approach for the recognition of  
institutional protection schemes (IPS) for prudential purposes 

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