London — HSBC, Barclays, Lloyds, NatWest, and Britain’s other top eight banks could be wound down in a crisis without the need for taxpayer cash, according to the Bank of England’s (BoE) second “resolvability” assessment of the lenders.
The ability to “resolve” or shut down a struggling major bank without destabilizing the financial system or relying on public funds was a key lesson from the global financial crisis of 2007-09. During that period, many banks had to be bailed out with taxpayer money.
“Our assessment gives further reassurance that if a major UK bank were to fail today, it could enter resolution safely: 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 stated.
The global banking sector’s stability was questioned last year when Switzerland forced UBS to take over the struggling Credit Suisse. This deal was supported by a 100 billion-Swiss franc ($117.7 billion) central bank loan instead of closing down the bank.
The BoE’s assessment identified some “shortcomings” or areas for “further enhancement” but found no critical issues that would impede the resolution of a lender in a crisis.
In the BoE’s first “resolvability” test of the eight major banks in June 2022, it was concluded that no lender was too big to fail. However, HSBC, Lloyds, and Standard Chartered were noted to have some planning deficiencies.
The BoE’s latest assessment underscores the progress made by UK banks in strengthening their crisis management frameworks. The banks have developed detailed plans to ensure they can continue operating critical functions and protect customer deposits during a crisis. This includes maintaining access to liquidity and capital, effective governance, and operational resilience.
The BoE emphasized the importance of continuous improvement, urging banks to address the identified shortcomings. These improvements will further solidify the financial system’s ability to withstand potential future shocks without burdening taxpayers.
The resolvability assessments are part of a broader regulatory effort to enhance the stability and resilience of the banking sector. They aim to ensure that major banks can be wound down in an orderly manner, minimizing disruptions to the financial system and economy.
The BoE’s findings are expected to bolster confidence in the UK banking system, reassuring investors, customers, and the public that significant progress has been made since the last financial crisis. With the resolvability frameworks in place, the likelihood of needing taxpayer-funded bailouts for major banks has significantly diminished.
