Summary
The financial crisis highlighted the importance of having an effective framework that enables banks to fail in an orderly manner. The suite of powers and responsibilities the Bank of England (‘Bank’) has gained since 2009 is critical to assuring that failing institutions can be resolved without direct costs to taxpayers. For the Bank to be able to resolve firms effectively requires effort not only through its work as the UK’s resolution authority, but also as a supervisor (through the Bank’s Prudential Regulation Authority) and a central bank lender.
The evolution of the UK resolution framework and the implications across the institution led the Court of the Bank of England to commission its Independent Evaluation Office (IEO) to review the effectiveness of the Bank’s resolution arrangements.
Findings
As the report sets out, significant progress has been made over the past decade, with Bank staff leading the way in international fora on developing the policy framework for resolution and taking steps to put policy into practice. As the IEO concludes, the Bank’s work with the industry means that firms are more resolvable now than they were during the crisis, and costs of failure would increasingly be absorbed by investors, rather than taxpayers. However, much also remains to be done if the major UK banks are to be fully resolvable by 2022.
Recommendations
The recommendations in this report cover three themes. The first looks to support the Bank’s work in delivering on its target to make firms fully resolvable by 2022. The second centres around the supporting infrastructure to reinforce cross-Bank working as it shifts further towards the implementation of the framework. The third levers off existing preparatory work for executing a resolution, bearing in mind it has been some time since a bank has been resolved in the United Kingdom.
Follow up
In September 2022, the IEO reported back to Court on the implementation of its evaluation into the Bank’s resolution arrangements. It noted that all the recommendations had been implemented successfully. Resolution was now a mature directorate within the organisation, having built its capacity and skills substantially.
Evaluation of the Bank of England’s resolution arrangements