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.
