By Geoffrey Davies and Marc Dobler of the Bank’s Special Resolution Unit.
Not for the first time, the global banking crisis illustrated the vulnerability of banks to a loss of confidence by their depositors, other creditors and counterparties. The experience highlighted the need to have special arrangements for dealing with failing banks — a ‘special resolution regime’ — that provides the authorities with the tools necessary to reduce the systemic risks arising from a bank’s failure while at the same time limiting the taxpayers’ exposure to the costs. The United Kingdom’s own Special Resolution Regime for dealing with failing banks and building societies was born out of the difficulties in dealing with the failure of Northern Rock in the autumn of 2007.
Bank resolution and safeguarding the creditors left behind