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Home > Financial Stability > Resolution planning
 

Resolution planning

 

The Bank must conduct resolution planning for all financial institutions within scope of the resolution regime, in preparation for potential failure. The purpose of resolution planning is to develop a resolution strategy for each firm, assess firms’ resolvability (that is, whether it is feasible and credible to resolve the firm without using public funds and without interruption to critical functions) and identify any barriers to resolvability that need to be addressed.   At different points in the process, the Bank as resolution authority would consult the relevant supervisor (PRA or FCA).
 
Resolution planning includes: (i) gathering information needed to establish a resolution strategy; (ii) drawing up resolution plans that operationalise the preferred resolution strategy; (iii) assessing resolvability and identifying any barriers to resolvability; and (iv) enhancing resolvability through removal of substantive barriers.
 
The development of a firm’s resolution plan begins with assessing information provided in Phase 1 of the firm’s resolution pack, to identify a preferred resolution strategy. The preferred strategy will depend upon the size, interconnectedness, legal structure, and scope and complexity of activities carried out by the firm.
 
Once a resolution strategy is identified, the Bank may request more detailed information, in Phase 2, to support development of the strategy. Phase 2 resolution planning is tailored to individual firms and relevant to the strategy determined in Phase 1.  The information request to firms should, therefore, be proportionate. 
 
When carrying out resolution planning, the Bank must complete resolvability assessments to determine whether it is feasible and credible to carry out the resolution plan in the event of a firm’s failure, without causing financial instability or interrupting the firm’s critical functions.  As part of the resolvability assessment, the Bank may identify substantive barriers to carrying out the preferred strategy. For example, where a firm is not able to identify those deposits insured by the FSCS, or where there is uncertainty that the firm will be able to continue to provide critical economic functions during resolution.
 
Once barriers have been identified, measures will need to be taken by the firm to remove them. The Bank must give firms an opportunity to make proposals to remove any substantive barriers to resolvability that are identified; but has a power to direct firms to take specific actions to remove the barriers if it deems their proposals inadequate.

For more information on how the Bank plans for a resolution, see Part 3 of The Bank of England’s approach to resolution.

Valuation capabilities


One area where a barrier to resolvability may arise is where the Bank is unable to obtain sufficiently timely and robust valuations to support the effective use of resolution tools. Robust valuations are critical to ensuring that resolution action is sufficient to address the full extent of losses, that creditors are treated fairly through resolution, and that risks to public funds are minimised. The Bank has released a consultation paper setting out its proposed policy on the valuation capabilities firms should have in place to support resolvability. This policy includes principles for the data, information, models, processes, and governance arrangements that firms are expected to establish, maintain, and demonstrate. The Bank welcomes views on this consultation paper by 17 November 2017.

The Bank of England's proposed policy on valuation capabilities to support resolvability
17 August 2017

Key Resources

The Bank of England’s power to direct institutions to address impediments to resolvability: responses to consultation and Statement of Policy, December 2015

The Bank of England’s power to direct institutions to address impediments to resolvability
Consultation Paper, 22 May 2015

​Bank/FDIC Memorandum of Understanding
Memorandum of understanding concerning consultation, cooperation and the exchange of information related to the resolution of insured depository institutions with cross-border operations in the United States and the United Kingdom

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