Implementing resolution regimes is a way for the authorities to avoid a direct cost to the public finances while at the same time containing disorder in the financial system for failed financial institutions. Such regimes enable the authorities to resolve failed financial institutions in a way that protects critical economic functions without severe systemic disruption and without exposing taxpayer to loss.
The Bank has a statutory objective to “contribute to protecting and enhancing the stability of the financial systems of the United Kingdom”. The Special Resolution Unit (SRU) established in February 2009, does this through resolution work to deal with distressed banks. The SRU plans for and implements resolutions of failing UK banks and building societies under the Special Resolution Regime (SRR) established under the UK Banking Act 2009, while also working to improve the framework for resolutions.
The SRU coordinates the Bank’s resolution of a failing deposit-taker, using the tools made available in the Act in order to meet the statutory objectives of the SRR. In planning for and implementing resolutions of failing banks, the SRU works very closely with many different areas across the Bank (particularly the Prudential Regulation Authority (PRA)), HM Treasury and a number of external stakeholders.
The SRU also has an important role in refining the UK’s approach to bank resolution, through formulating and implementing policy in the UK and internationally. This includes working with the PRA on formulating policy for Recovery and Resolution Plans (RRPs). Under the Financial Services Act 2010 all UK deposit-takers are required to have RRPs in place.
The SRU is also working with the other UK Authorities to consider how best to enhance the SRR to comply fully with the FSB’s Key Attributes of Effective Resolution Regimes, endorsed by G20 Leaders in November 2011 as the international standard for resolution. This will require broadening the scope of the SRR stabilisation powers to include other financial institutions whose failure could be systemic, including holding companies and investment firms, and extending the SRR toolkit to include an explicit power to bail in unsecured and uninsured creditors of a failing bank.
Resolutions under the SRR