Who we are and what we do

We are responsible for planning for and executing a resolution.

We plan for the resolution of every bank, building society and some investment firms in the UK, and review these plans annually.

A resolution plan contains two main elements. First, a 'preferred resolution strategy', which identifies the tools we would use to resolve the firm. Second, a 'resolvability assessment' which identifies what may impede us from doing that.

Many firms share some of the factors that make a resolution difficult. We highlight these and require firms to take action to address them. Our approach is designed to be proportional. So large or complex firms have more extensive requirements. This is because they’re harder to resolve and would be more disruptive to the economy if they failed in a disorderly way.

The PRA or the FCA determine if a firm is failing, or likely to fail, after consulting us. We then consult the PRA, the FCA and HMT before we judge that a firm needs to enter resolution.

If a firm fails, we are responsible for executing the resolution.

The Banking Act 2009 sets objectives we must have regard to when we prepare for and carry out resolutions.

These are to:

• make sure banking services and other functions provided by firms which are critical to the economy remain available
• protect and enhance financial stability
• protect and enhance public confidence in the financial system's stability
• protect public funds
• protect depositors and investors covered by the FSCS
• protect (where relevant) client assets
• avoid interfering in property rights

HMT provides guidance on how and when the authorities (the Bank, the PRA, the FCA, the FSCS and HMT) will use the regime in their special resolution regime code of practice.

To be ‘resolvable’ a firm needs to have arrangements and plans in place so we can carry out a resolution if it fails. We think about resolvability in terms of whether a firm:

• has enough resources to support a resolution, eg to absorb its losses and recapitalise the firm, and continue to pay its financial obligations
• is able to continue doing business during (and after) resolution
• is able to co-ordinate and communicate effectively within the firm, with the authorities and with the market.

We have published policies and rules in relation to barriers to resolvability. 

Each year we assess the barriers to implementing the strategy and meeting our statutory objectives for each firm. If necessary, we can make a firm remove these barriers to make them more resolvable.

For cross-border banks, we work closely with authorities in other jurisdictions to ensure a co-ordinated and co-operative approach. This includes co-ordinating on developing policies relating to resolution. 

When the firm is a UK firm, we are the ‘home’ resolution authority and responsible for ensuring the failure of the whole banking group can be achieved in an orderly way. 

For a foreign firm that operates in the UK, we are a ‘host’ resolution authority, and our role is to support the firm’s home resolution authority in preparing for, and where necessary implementing, a resolution. 

We develop a resolution plan for each UK bank, building society, and certain investment firms. Each plan sets out the actions we would take if a firm failed. We have resolution plans for around 400 firms. For the large majority of these firms, the plan is to permit it to enter insolvency and rely on FSCS protection.

We review these plans every year and update them if necessary.

We identify the preferred resolution strategy for each firm. That depends on things like how much harm its failure would cause to the wider economy and what kind of structure it has. 

The three main strategies are:

Bail-in

This is our preferred strategy for the largest firms that provide vital services to the UK economy. 

The firm’s equity is written off, and debts written down, to absorb losses. Then it is recapitalised – the debtholders whose debt was written down are issued equity and become the new shareholders. In the medium-term, it would be restructured to address the causes of failure and restore market confidence.

Transfer

Preferred for a medium-sized firm that could credibly have a buyer for all or part of it. 

The firm is sold immediately or after a short period. If it takes a short period, then its critical functions are transferred to a temporary ‘bridge bank’ controlled by the Bank of England, before being sold on. 

Modified insolvency

Preferred for a firm we think could be put into insolvency without risking our statutory objectives to protect financial stability and depositors. 

The firm would enter into a form of insolvency. The FSCS would compensate eligible depositors up to £85,000, or fund a transfer of their accounts to a healthy firm. 

We have a number of tools to implement these strategies. Find more details in the Bank of England’s approach to resolution.

Bail-in is one of the stabilisation tools available to the Bank as resolution authority under the Banking Act 2009. Bail-in ensures investors, rather than public funds, bear losses where a firm fails.

Bail-in enables the Bank to impose losses on shareholders and to write down or convert into equity the value of the claims of certain unsecured creditors, so that the failed firm can be recapitalised and continue to operate thereby ensuring the continuity of critical functions pending a reorganisation of the business that addresses the causes of failure.

It means we can be more confident that banks will be able to keep critical services operating through resolution and restructuring, while maintaining appropriate financial resources and with costs borne by the failed bank’s owners and investors rather than by depositors or taxpayers.

The Bank has published an operational guide that provides practical information on the ways in which the Bank of England might execute a bail-in resolution, and in particular the operational processes and arrangements that may be involved.

The Banking Act 2009 says a firm has entered resolution when:

• the PRA, or the FCA for a firm only regulated by the FCA, assesses that the firm is failing or likely to fail, having consulted us; and
• we decide it is not reasonably likely that action will be taken – outside of resolution – that will result in the firm no longer failing or being likely to fail. Before making this decision, we must consult the PRA, FCA and HMT.

If we wanted to use one of the other powers (bail-in or transfer), we must also determine that it would be necessary in the public interest – which includes that we could not meet our resolution objectives to the same extent by placing the firm into a modified insolvency instead. We will consult the PRA, FCA and HMT before deciding that these conditions are met.

If a firm fails to meet the public interest test, we place it into modified insolvency.

As a last resort, HMT can transfer a failing firm into public ownership or make a public equity injection.

It is slightly different process for a CCP. In the Bank of England’s role as the CCP’s supervisor, we would decide if the CCP was failing or likely to fail. Then, in the Bank of England’s role as the resolution authority, we would decide if it were reasonably likely that action could be taken that would result in the CCP no longer failing or being likely to fail, after consulting HMT.