Bank of England enhances resolution readiness with updated operational guides

News release

The Bank of England has today published new and updated guidance on how the Bank might implement the UK’s resolution regime in the event of a bank failure.

The resolution regime is designed to ensure that banks can fail safely, without disruption to critical services such as payments and deposit access, and without relying on public funds. By requiring firms to plan for failure in advance, the regime protects financial stability and supports confidence in the banking system.

A new operational guide provides clarity on how the Bank might execute a transfer resolution. This could include a situation in which some or all of a failing firm’s business is transferred to a private sector purchaser, or a temporary Bank-owned bridge bank, and includes how it may require a recapitalisation payment. The guide expands on using resolution powers to execute sales within bank failure scenarios.

For a bail-in resolution, a failing firm is recapitalised by imposing losses on the firm’s shareholders and creditors. Updates to the Operational guide to bail-in resolution are supported by lessons learned from the failures of Silicon Valley Bank and Credit Suisse, as well as continued international work to enhance the credibility and effectiveness of bail-in. The key addition is the introduction of an alternate approach to bail-in where affected creditors receive non-transferable contingent beneficial interests. These interests simplify the bail-in process and represent a potential right to shares, or proceeds from the sale of shares, once the resolution is concluded. These interests would be created upon entry into resolution and exist until the share allocation for relevant creditors is finalised.

Ruth Smith, Executive Director of the Resolution Directorate, said:

“This guidance gives further clarity and additional transparency on how the Bank, as the UK’s resolution authority, would operationally manage a bank failure, whether through bail-in or transfer. By continuing to establish a shared understanding of how plans would be implemented in stress, we strengthen our preparedness and responsiveness to act if needed”.

Both operational guides also provide further detail on the Bank’s approach to implementing a resolution of a building society.

Alongside these changes, the Bank requested and was granted a No-Action Letter from the US Securities and Exchange Commission (SEC). This confirmation provides additional assurance regarding the cross-border operability of bail-in. The Bank of England would like to thank Chairman Atkins and SEC staff for their collaboration and support for ongoing international efforts to strengthen resolution preparedness.