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Home > Financial Stability > Tools available within the resolution regime
 

Tools available within the resolution regime

​Aims and objectives  |  Key features of the resolution regime  |  Tools available within the resolution regime  |  Legislative framework for the UK resolution regime

​The decision to place a firm into resolution does not, on its own, allow use of all of the resolution tools. In order for the regime’s stabilisation tools to be used (see below), it must necessary to do so, having regard to the public interest in achieving the objectives of resolution. To determine whether the public interest test is met, the Bank, having consulted the PRA, FCA and HM Treasury, will assess the probable impact of the firm’s failure assuming it has been placed into one of the modified insolvency regimes that are available for a bank, building society or investment firm. If this assessment indicates that use of the insolvency procedure would not meet the resolution objectives, the stabilisation tools may be used.

The stabilisation tools

If the public interest test is met, the Bank may:

  • transfer all or part of a firm’s business (which includes its shares or its property) to a willing and appropriately-authorised private sector purchaser;
  • transfer all or part of a firm’s business to a bridge bank, which would be a subsidiary of the Bank of England and would meet the necessary conditions for authorisation, pending a future sale or share issuance;
  • conduct a bail-in to absorb the losses of the failed firm, and recapitalise that firm (or its successor) using the firm’s own resources.

These stabilisation tools allow the Bank to ensure that the critical economic functions and parts of the firm that have a ready market value can be maintained. For those parts of the firm that do not need to be maintained permanently but may need to be wound down in a measured way, there are two tools that can only be used in conjunction with one or more stabilisation tools. These are:

  • asset separation tool: this is used to allow assets and liabilities of the failed firm to be transferred to a separate asset management vehicle, with a view to maximising their value through an eventual sale or orderly wind-down; and
  • bank administration procedure (BAP): this is used to put the part of a failed firm that is not transferred to the bridge or private sector purchaser (known as the residual bank) into administration. The priority of the administrator is to ensure that the residual bank continues to provide necessary services (for example IT infrastructure or mortgage servicing) to the new owner of any transferred business until permanent arrangements for those services can be put in place.

The role of insolvency

If the public interest test is not met, firms may be put into a modified insolvency procedure if they hold protected deposits or client assets (or both). An insolvency practitioner will be appointed to manage the wind-down of the firm, with a priority to either transfer protected depositors’ accounts to another deposit-taker or to facilitate a payout within seven calendar days to those protected depositors by the FSCS. Similarly, an administrator of an investment firm is required to return client money or assets as soon as is reasonably practicable. Where the firm holds neither protected deposits nor client assets, it would be placed into ordinary insolvency.

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