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Taxpayers are protected from bailing out failed banks, BoE finds
The Bank of England (BoE) has found that major UK banks would not need to be bailed out by the public if they were to fail.
In its second resolvability assessment of major UK banks publication, the central bank found that a “major UK bank could enter resolution safely if needed: remaining open and continuing to provide vital banking services, with shareholders and investors – not public funds – first in line to bear the costs of failure”.
The BoE assessed HSBC, NatWest, Nationwide, Barclays, Virgin Money, Santander, Lloyds Banking Group and Standard Chartered.
On the whole, no material issues were found, but the central bank did identify areas that could be improved.
It said following the global financial crisis, the purpose of reforms was to make “resolution a cornerstone of financial stability and essential to protect the public purse”.
The central bank said the resolution of Silicon Valley Bank, which collapsed in March last year and was subsequently acquired by HSBC for £1, showed it was “ready and able” to protect financial stability when needed.
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“Resolution, especially of a large bank, will never be easy to execute given the complexity and risks – but it is better than the alternative of bailing out a failed bank with public funds,” it added.
The BoE postponed its third assessment by one year to 2026-27 and said this would focus on the continuity and restructuring outcome of UK banks. This will include an assessment of their readiness to plan quickly for restructuring options to address the causes of failure and restore viability.
Dave Ramsden, deputy governor of the BoE, said: “Maintaining a credible and effective resolution regime is a continuous process, and authorities and firms need to respond as the financial system and regulatory landscape evolves. We welcome the progress made by the major UK banks.
“The Financial Stability Board’s [FSB’s] report on the preliminary lessons learnt from the 2023 bank failures concluded that the international framework for bank resolution remains sound, but also that authorities and firms have important work to do to ensure the effective implementation of that framework: resolvability will never be ‘done’ and there will always be lessons to learn from putting the regime into practice.”