Resolvability Assessment Framework

Overview

The Resolvability Assessment Framework (RAF) sets out how the Bank of England (‘the Bank’), as the UK’s resolution authority, assesses UK financial firms’ resolvability and introduces a public disclosure regime.

It builds on the work since the financial crisis to create a resolution regime that ensures firms can fail in an orderly way. The framework is designed to make resolution more transparent, better understood and more successful. We expect it to help market participants make more informed investment decisions.

The Bank must be confident that it could use its powers effectively to resolve a firm if needed. This means protecting public funds, avoiding significant adverse effects on the financial system, and ensuring continuity of banking services and critical functions.

The RAF applies to UK firms notified by the Bank that their preferred resolution strategy is bail-in or partial-transfer and material subsidiaries of overseas-based firms operating in the UK. It makes firms responsible for demonstrating how prepared they are for resolution.

Firms need to be able to show how the preferred resolution strategy set for them could be carried out in an orderly way. This includes showing that they have identified any risks to their successful resolution. The major UK firms (see Resolution Assessment 1.1) are required to submit a report of their assessment of their preparations for resolution to the PRA, and publish a summary of their most recent report (public disclosure). The PRA will communicate the expected reporting and disclosure dates in advance.

The Bank and Prudential Regulation Authority (PRA) published this framework in July 2019, following a consultation.

Resolvability Assessment of major UK banks: 2024

Resolvability assessment of major UK banks: 2024
News release: Resolvability assessment of major UK banks: 2024

Resolvability Assessment of major UK banks: 2024

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Today, the Bank of England has published its second assessment of the eight major UK banks under the Resolvability Assessment Framework.

This is our approach to assessing whether these firms are prepared for resolution.

Resolution is our process to ensure banks, and other financial institutions who get into serious difficulties, can remain open and continue to provide vital banking services to people, businesses, and the economy as a whole.

With investors, not taxpayers, first in line to bear the costs.

Our assessment shows that the major UK banks have continued to make significant progress in improving their preparations for resolution, and in addressing issues outstanding from the first assessment in 2022.

For the first time, we have conducted more detailed assessments to test how major UK banks’ preparations for resolution work in practice.

Focussed in particular on one of the three outcomes major UK banks need to achieve to be considered resolvable: having Adequate Financial Resources in the context of resolution.

As expected, given the more detailed assessment and ongoing nature of maintaining and enhancing resolvability.

Both the Bank and major UK banks themselves have identified new areas for future work as part of this assessment that were not identified as actions from the first assessment.

But we have not identified any deficiencies or substantive impediments to resolvability.

The major UK banks are expected, as a priority, to address the feedback from this, and previous assessments.

And we expect banks to take ownership of their resolvability and to continuously maintain and improve their resolvability capabilities.

We will continue to consider major UK banks’ capabilities in more detail in future assessments.

To emphasise, today’s findings provide ongoing reassurance 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.

Resolution, especially of a large bank, will never be easy to execute and the system cannot be fully resilient to all possible shocks, no matter how much preparation is done.

But it provides a better alternative to bailing out a failed bank with public funds.

And our resolution of Silicon Valley Bank UK in March 2023 demonstrated that we remain ready, and able, to use the resolution regime to protect financial stability if required to do so.

Reflecting the significant progress that major UK banks’ have made, and to provide time for both the Bank and firms to prepare for further, deeper testing, we expect to delay the third assessment by one year to 2026-27.

The Prudential Regulation Authority will consult on this in due course.

And in the meantime, the Bank and PRA will continue to work closely with the major UK banks to ensure that progress on resolvability continues.

Key parts of the Resolvability Assessment Framework

Update 6 August 2024: The Bank published the findings from its second assessment of the resolvability of the major eight UK banks under the Resolvability Assessment Framework. In parallel, the eight major UK banks also published their own public disclosures on their preparations for resolution.

Update 10 June 2022: The Bank published the findings from its first assessment of the resolvability of the major eight UK firms as part of the Resolvability Assessment Framework. In parallel, the major eight UK firms also published their own public disclosures on their preparations for resolution.

Update 28 May 2021: The Bank and PRA published updates to OCIR policy and the RAF:

We have also published a new webpage listing the main policy documents related to the Resolvability Assessment Framework.

Update 18 December 2020: The Bank announced changes to the resolvability deadlines under the RAF for mid-tier banks. The deadline for mid-tier banks to implement the Statement of Policy ‘The Bank of England’s Approach to Assessing Resolvability’ and to achieve the three resolvability outcomes has been extended from 1 January 2022 to 1 January 2023.

This update accompanied changes to deadlines for certain firms to meet their Minimum Requirement for Own Funds and Eligible Liabilities (MREL).

Update 7 May 2020:
On 7 May 2020 the Bank, as Resolution Authority, and PRA announced measures to alleviate operational burdens on firms in response to the Covid-19 outbreak. Among these measures, it was announced that the PRA has offered firms, via a temporary modification by consent, a one year delay to the first reporting and disclosure dates for firms in scope of the Resolution Assessment Part of the PRA Rulebook.

These firms will now be required to first submit a report of their assessment of their preparations for resolution to the PRA by October 2021 and to publish a summary of this report by June 2022. The Bank intends to make its first public statement on these firms’ resolvability by June 2022. As noted in the announcement, the PRA intends to consult in due course, principally with a view to aligning the dates in the Resolution Assessment Part of the PRA Rulebook with those in the modification by consent.

By holding firms accountable to regulators, the public and their investors, the RAF helps to ensure that firms would be able to fail in an orderly fashion without causing excessive disruption to the UK financial system.

The RAF has three main components:

How the Bank, as the UK’s resolution authority, will assess resolvability, building on work firms and the Bank have already done. The statement of policy, The Bank of England’s approach to assessing resolvability, outlines the outcomes the Bank is looking for from firms to support resolution. Firms will use existing Bank and PRA policies, as well as new policies published alongside the RAF, to understand the objectives and principles they should meet.
A new Resolution Assessment Part of the PRA Rulebook that requires major UK firms (retail deposits greater than £50 billion) to assess their preparations for resolution, which must include the identification of any risks to successful resolution and plans in place to address those risks. Relevant firms must submit a report of that assessment, and publish a summary of their most recent report (public disclosure). The PRA Supervisory Statement SS4/19 Resolution assessment and public disclosure by firms sets out what the PRA expects these firms to do. It also highlights that senior management should be accountable for this work within firms.
The Bank’s intention to publish information on the resolvability of each major UK firm and where we believe there is more work for them to do.