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UK banks will have to publish 'living wills' to ensure 'orderly failure' UK banks will have to publish 'living wills' to ensure 'orderly failure'
(34 minutes later)
Britain’s largest lenders will have to publicly disclose whether they can afford to foot the bill for their own failures and wind down in an “orderly” way, as part of the Bank of England’s latest efforts to avoid a repeat of crisis-era bailouts.Britain’s largest lenders will have to publicly disclose whether they can afford to foot the bill for their own failures and wind down in an “orderly” way, as part of the Bank of England’s latest efforts to avoid a repeat of crisis-era bailouts.
The public assessments of so-called living wills is part of the central bank’s efforts to ensure lenders can fail safely, without needing government cash or causing major disruption across financial markets, by 2022. The public assessments of so-called “living wills” are part of the central bank’s efforts to ensure lenders can fail safely, without needing government cash or causing major disruption across financial markets, by 2022.
The Bank of England made that commitment to parliament in the wake of the 2008 financial crisis, which resulted in the government bailout of Royal Bank of Scotland and Lloyds.The Bank of England made that commitment to parliament in the wake of the 2008 financial crisis, which resulted in the government bailout of Royal Bank of Scotland and Lloyds.
The latest proposals mean the UK’s seven largest high street banks – RBS, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander and Nationwide building society – will start assessing whether they are in a position to continue operating in circumstances where they are headed for a full shut down or major reorganisation. They will have to prove they have the financial resources to cover potential losses, and continue to do business by serving customers and existing contracts. The latest proposals mean the UK’s seven largest high street banks – RBS, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander and Nationwide building society – will start assessing whether they are in a position to continue operating in circumstances where they are headed for a full shutdown or major reorganisation. They will have to prove they have the financial resources to cover potential losses, and continue to do business by serving customers and existing contracts.
Lenders’ first living wills assessments are to be handed to the Bank’s Prudential Regulation Authority in September 2020, before a summary of each bank’s preparedness is released to the public in 2021.Lenders’ first living wills assessments are to be handed to the Bank’s Prudential Regulation Authority in September 2020, before a summary of each bank’s preparedness is released to the public in 2021.
While it will not be a pass-fail test, the Bank will issue its own statement outlining whether each living will is fit for purpose or requires more work, before the 2022 deadline. While it will not be a pass/fail test, the Bank will issue its own statement outlining whether each living will is fit for purpose or requires more work, before the 2022 deadline.
The UK’s largest high street banks, which have at least £50bn in retail deposits, will then have to repeat the exercise every two years, in addition to the annual Bank of England stress tests.The UK’s largest high street banks, which have at least £50bn in retail deposits, will then have to repeat the exercise every two years, in addition to the annual Bank of England stress tests.
The proposed disclosures – which will now go to consultation – are meant to make banks’ resolution plans “transparent, better understood and more successful”, the Bank said. It is meant to build on “key post-crisis work, imposing losses on the investors of failed banks, not taxpayers”.The proposed disclosures – which will now go to consultation – are meant to make banks’ resolution plans “transparent, better understood and more successful”, the Bank said. It is meant to build on “key post-crisis work, imposing losses on the investors of failed banks, not taxpayers”.
Jon Cunliffe, the Bank’s deputy governor for financial stability, said: “Disorderly bank failures can imperil financial stability, including interrupting the most important services banks provide to their customers.Jon Cunliffe, the Bank’s deputy governor for financial stability, said: “Disorderly bank failures can imperil financial stability, including interrupting the most important services banks provide to their customers.
“The Bank of England has been working to build an effective resolution regime which will ensure that banks are able to fail in an orderly manner with losses borne by their investors.”“The Bank of England has been working to build an effective resolution regime which will ensure that banks are able to fail in an orderly manner with losses borne by their investors.”
Banking reformBanking reform
Bank of EnglandBank of England
Jon CunliffeJon Cunliffe
BankingBanking
Financial sectorFinancial sector
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