Ruth Smith, Executive Director, Resolution.footnote [1]
This article sets out how we maintain and strengthen our ability to stabilise a failing firm, keep essential operations running, and support confidence in the financial system. As a public authority, we need to be open and accountable about how we prepare for, and manage, failure. Transparency helps markets operate in an orderly way and ensures that, if a failure occurs, everyone involved can understand the tools we may use.
When we ask firms to ‘plan to fail’, we begin with a preferred resolution strategy: our plan A. Today’s publications explain how two of those strategies operate in practice:
- bail-in, and
- sale or transfer to a private sector buyer or temporary bridge bank.
Key developments include:
- A new alternative method for delivering a bail-in.
- Incorporation of the lessons from the 2023 sale of Silicon Valley Bank UK (SVBUK).
- Implementation of the Bank Resolution (Recapitalisation) Act 2025.
Giving firms and markets a clear picture of how resolution works helps them prepare and helps us co-ordinate with authorities globally. Speaking a common language about the available tools, and how they could work in practice, supports credible and effective execution under pressure.
1: Bail-in
Bail-in is a central tool of the UK’s resolution regime. It allows a failing firm to be stabilised by writing down or converting the claims of its shareholders and bondholders to recapitalise the firm, rather than relying on public money. In terms of ‘who pays’, firms with a bail-in preferred resolution strategy are asked to self-insure for failure by maintaining sufficient loss-absorbing capacity so that a bail-in could restore their capital and ensure continuity of their critical economic functions.
The credibility of bail-in does not rest only on authorities having the appropriate legal powers and loss-absorbing capacity. It also depends on being able to execute the process quickly, in uncertain conditions, and in a way that markets and counterparties can understand. Our focus is therefore on ensuring bail-in is operationally deliverable, not a theoretical option.
Updated operational guide to bail-in resolution
Today’s updated guide provides greater clarity on how we would carry out a bail-in. Market events in 2023 prompted increased scrutiny of the feasibility of bail-in internationally. Through our work in the UK and in international groups, we have sought to address these concerns, and the publication today sets out this thinking in more detail.
Although the UK has not yet needed to use bail-in, we are publishing templates of the legal instruments we would use to resolve a bank or building society. These documents help to illustrate the steps we would take to effect a bail-in and help assure the market of the robustness of preparations.
PROPPs: an alternative approach
Our core approach is to bail in shareholders and bondholders of the firm in order to recapitalise and ultimately stabilise the firm. Under our existing approach, bondholders would receive temporary, transferable instruments known as ‘Certificates of Entitlement’ (CEs), which would eventually be exchanged for shares in the failed firm once the necessary extent of the write-down, recapitalisation and restructuring plans have been finalised. We have now developed an alternative option: Potential Rights to Onward Property or Proceeds (PROPPs).
PROPPs are non-transferable interim rights that confer a contingent beneficial interest on bailed-in bondholders. These rights entitle them to shares in the failed firm subject to the completion of final valuations and an individual bondholder’s position in the creditor hierarchy. This approach reduces operational and legal complexity. Adding PROPPs to our toolkit alongside CEs provides us with optionality to respond to and mitigate risks during a bail-in.
The compatibility of bail-in mechanisms with securities laws in different jurisdictions is a matter of on-going work within the Financial Stability Board (FSB). With that in mind, we have obtained a No-Action Letter from the US Securities and Exchange Commission (SEC) in relation to a UK bail-in that involves the creation of PROPPs in favour of bailed-in investors. While obtaining a No-Action Letter is not a pre-condition for relying on an exemption from registration under US securities laws, it can be helpful in providing assurance that the SEC staff would not recommend enforcement action where PROPPs are created during a UK bail-in in the manner set out in the letter. This provides one path through some of these international considerations, but work continues through the FSB and bilaterally with other authorities to promote greater clarity and transparency on the efficacy of bail-in across jurisdictions.
Behind-the-scenes steps during a bail-in
The operational guide also provides more detail on the key steps the Bank would take, including on:
- Valuation and write-down: as resolution authority, we will need to judge the appropriate level of recapitalisation, as well as when to write down liabilities. This will depend upon our level of confidence in both current or future losses, based on an initial valuation. This is conducted rapidly and with imperfect information, to judge the scale of losses and determine the appropriate write-down of liabilities.
- Recapitalising subsidiaries: internal loss-absorbing resources allow us to recapitalise key operating subsidiaries immediately at the point of failure.
- Further valuation and restructuring work: detailed analysis, including valuations, would then determine the final extent of losses and recapitalisation required via further write-downs. Our approach to bail-in allows us time to ensure we robustly capitalise the firm while minimising compensation risks. The Resolvability Assessment Framework sets out detailed expectations of firms to prepare valuation and restructuring capabilities to support this work. We plan to test these capabilities through our assessments of firms’ resolvability later this year.
- Simplifying the capital structure: after the initial bail-in, the resolved firm would be capitalised entirely through equity, giving it a clean platform for restructuring and absorbing any further losses without intervention. A firm would reconstitute their capital structure over time, as it rebuilds to meet applicable loss-absorbing requirements, typically within 24 months.
2: Transfer
A transfer strategy involves selling all or part of a failing firm to a private sector purchaser. This option can be particularly effective for smaller, domestically focused firms that do not hold additional loss-absorbing resources.
We demonstrated our ability to execute a transfer in the resolutions of SVBUK in 2023 and Dunfermline Building Society in 2009. Internationally, transfer strategies are an area of focus, with the Bank supporting the drafting of the FSB’s November 2025 publication, Practices Paper on the Operationalisation of Transfer Tools.
The new Operational guide to transfer resolution sets out in greater detail how resolution transfer powers, which allow the Bank to sell all or part of a bank in resolution to a willing private sector purchaser or to a Bank of England-owned bridge bank, would operate. This includes the potential use of the new recapitalisation payment mechanism, now available to the Bank following amendments to domestic legislation introduced by the Bank Resolution (Recapitalisation) Act 2025. This allows transferred firms to be recapitalised through an ex-post industry-funded safety net avoiding the use of public funds.
In a resolution sale, the Bank is focused on achieving its special resolution objectives. Ultimately, any resolution option must ensure that no creditor is left worse off than if the firm had entered insolvency.
Allowing a firm to fail and enter insolvency, without the use of stabilisation powers, is the initial consideration for all firms in the regime. To utilise stabilisation options, the Bank must demonstrate value in achieving the special resolution objectives above that.
As SVBUK showed, a firm failure can crystallise rapidly, and our working assumption is that we would be required to carry out a resolution in the space of a weekend, which underlines the importance of advance planning for failure.
The guide explains how we would run a competitive process at pace to identify the best buyer, and the tools required to facilitate a sale, including the ability to establish a secure data room to provide potential purchasers with the information they need.
If no suitable buyer is found that advances the special resolution objectives, the Bank may transfer the firm to a temporary Bank-owned bridge bank or consider another strategy. For both private sector purchaser and bridge bank transfer options, the Bank may also call on industry to contribute through the recapitalisation payment mechanism. While public funds are not involved, we will need to be prudent and ensure that the size of recapitalisation payment is proportionate to the risk. For example, the recapitalisation payment mechanism is not intended for use on the largest firms, as for those we expect to self-insure through holding their own loss-absorbing resources.
We remain focused on ensuring that Bank Insolvency Procedure remains a credible and operable possibility for smaller banks in particular, and we continue to work closely with the Financial Services Compensation Scheme (FSCS) to ensure that systems are ready to reimburse protected depositors quickly if needed. The PRA’s increase of the FSCS protection limit from £85,000 to £120,000 (effective December 2025) strengthens confidence in deposit safety and supports the credibility of all resolution tools.
Resolution for building societies
The updated guides also provide further detail on how we plan to implement the bail-in or transfer of a building society. Building societies are mutually owned institutions which play critical roles in the UK economy, but like all firms, they can fail – as seen with Dunfermline Building Society in 2009. The updated Operational guide to bail-in resolution explains how bail-in would operate for a building society, including where demutualisation may be required so that ownership of the failed firm can be transferred to bailed-in investors, instead of remaining with its pre-resolution members. In a transfer resolution, demutualisation may also be required if the acquirer is a bank, but may not be needed if the acquirer is another building society. Under both types of resolution, members’ deposits would remain protected in line with FSCS rules.
Conclusion
Our role as resolution authority is to remain ready, responsive and transparent by evolving our arrangements as appropriate. By publishing these updated operational guides for bail-in and transfer resolution, we are aiming to help firms, investors and the public understand how the Bank’s powers could be used in a crisis. A credible, effective and responsive resolution regime is essential to maintaining financial stability; and financial stability underpins sustainable growth.
With thanks to Sarah Kennedy, Tom Fleming, Tommy Garland, Frank Hillman, Anna Burningham, George Robinson, Amelia Chichester-Constable, Hokulani Honda, Tom Carr, Alan Newton and Kat Hind for their support in preparing this article and the various publications mentioned in this article.