The evolution of the Bank’s approach to resolution − speech by Dave Ramsden

Speech

Good afternoon. I am delighted to be here and thank you to the Money Macro and Finance Society and King’s College London, two bodies I have a close affiliation with, for hosting me today.

For the avoidance of doubt, given we are at the start of a new year, the resolution I’m going to be focused on today is the one that makes a key contribution to financial stability by ensuring that banks and other financial institutions can be allowed to fail in an orderly way. The resolution which ensures the ongoing provision of critical financial services, the protection of customer deposits and reduced reliance on public funds.

But there is a link to the other resolution more typically committed to at this time of year. In focusing on how the Bank of England’s (the Bank’s) approach to resolution has evolved in the period since the failures of Silicon Valley Bank (SVB) UK and Credit Suisse in March 2023, I want to highlight that a common theme, or goal, of the Bank’s evolving approach to resolution has been to be as responsive as possible. For me responsiveness now sits alongside credibility, feasibility and effectiveness, the key themes I set out in my last Resolution-focused speech, as one of the key goals of our approach as the UK’s resolution authority.

That responsiveness takes different forms. In the last 2 years, we have been responding to the events of 2023. In the resolution of SVB UK public funds were not exposed to loss. And the failure of Credit Suisse, a Global Systemically Important Bank (GSIB), did not lead to contagion into the UK financial system. But we learned lessons from our response, from putting our playbooks into action – particularly in relation to the need for inherent flexibility.

Responsiveness also needs to be viewed in terms of how our approach to resolution increasingly has to look beyond banks (and building societies) to the evolution of the wider financial system. Not least because, as the Financial Policy Committee (FPC) set out in December, risks to financial stability increased in 2025. Key sources of risk include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets. Elevated geopolitical tensions increase the likelihood of cyberattacks and other operational disruptions.

And responsiveness goes wider than our direct responsibilities, functions and tools that go with being the UK‘s resolution authority – because prevention is as important as the cure. In my speech today I will refer to some of my broader responsibilities as a member of both the FPC and the Prudential Regulation Committee (PRC) and my role as part of the Bank’s Executive responsible for oversight of the Bank’s balance sheet.

Resolution supports financial stability. A stable financial system is one that has sufficient resilience to be able to facilitate and supply vital services by financial institutions, markets and market infrastructure to households and businesses, in a manner that absorbs rather than amplifies shocks. ‘Sufficient’ resilience is not about the elimination of all risks. It is about identifying, monitoring and taking action to remove or reduce systemic risks – those that could severely impair the supply of the financial system’s vital services, which underpin economic growth and stability. So, there is a fundamental trade-off between how much ex-ante resilience is ‘sufficient’ in normal times to mitigate ex post costs – those that result from financial instability in crisis times.

The Global Financial Crisis (GFC) was a clear example of where the UK and other jurisdictions got the trade-off wrong and we did not have enough ex-ante resilience. In response, the UK authorities developed and implemented a credible resolution regime^{footnote [1]}, working closely with the international financial community, which has now been in place for over a decade. But as with any trade-off there's a continuous balance to strike to optimise ex ante resilience and ex post costs. As our resolution regime responds to more recent events and our changing environment, maintaining the right balance in our resilience supports sustainable growth.

I want to start by exploring this trade-off in more detail and set out my thinking of how our credible, effective and responsive approach in recent years means we have a proportionate resolution regime for banks and building societies which can support growth.

A proportionate and responsive resolution regime supports growth

Sustainable economic growth

A credible, effective resolution regime reduces the calibration of bank capital requirements necessary to support financial stability, the foundation for sustainable growth.

As the FPC set out in its recent Financial Stability Report, periods of financial instability negatively impact the provision of vital services to households and businesses, weighing on output and productivity growth. The absence of a credible resolution regime during the GFC meant the UK Government had to inject £137 billion of public money to stabilise the financial sector. The GFC also resulted in scarring of the economy - a large and permanent hit to the level of productivity and a sustained slowing in its growth rate. Chart 1 shows the UK’s productivity growth was lower than the other G7 economies in the decade after the GFC.

Chart 1: UK productivity growth in recent years has been low by historicalstandards, and relative to some other advanced economies

Average growth in GDP per hour worked, UK, US and G7 excluding US and UK(weighted average) ^(a) (b)

By contrast, a stable financial system supports lower risk and term premia, lowering the cost of borrowing and improving incentives to fund long-term productive investment and sustainable growth.

The GFC raised the question of “who pays?” for a firm’s resolution, to avoid bail-outs with public funds. I’ll return to this question later but it is also relevant to the FPC’s latest assessment of bank capital requirements, which was published in December 2025.

The FPC’s assessment weighs the trade-off between macroeconomic costs and benefits of loss-absorbing capital. On the one hand higher capital requirements can push up on borrowing costs, whilst on the other higher bank capital reduces the likelihood and costs of financial crises. The FPC judges that the appropriate benchmark for the system-wide level of Tier 1 capital requirements^{footnote [2]} is now 1 percentage point lower at around 13% of Risk Weighted Assets (RWAs).

A key and material judgement, reaffirmed in the FPC’s latest assessment, is that the UK’s post-GFC regime, in particular the resolution regime, reduces both the probability and the costs of financial crises. This judgement materially reduces the appropriate level of Tier 1 capital requirements for banks, by about 5 percentage points. Or put another way, if the UK did not have a credible and effective resolution regime banks would need to hold significantly more capital to mitigate risks to public funds. We would not be discussing the reduction from 14% to 13% RWAs, but from 19% to 18% RWAs, other things equal.

Effective resolution reduces the probability of crises primarily through market discipline. A credible resolution regime transfers the risk of failure from the government to creditors, aiming to reduce or eliminate moral hazard. In the UK, a bail-in risk premium – estimated at c. 30-45bps for a sample of large UK banks – indicates this market discipline, which incentivises banks to reduce excessive risk taking. Market discipline is also evidenced by the actions of credit rating agencies, which have lowered, or removed their expectations of implicit government support for UK bank holding company bondholders. Bank analysis also finds evidence of firm-specific pricing of risk – an encouraging sign of strong market discipline.

A range of studies show that rapid and effective resolution also reduces the economic costs of crises by limiting the otherwise longer-lasting nature of financial crises. Brooke et al. (2015), the analysis used in the FPC’s assessment, assume a material 60% reduction in the net present value (NPV) cost of crises.

Chart 2 shows the FPC’s latest assessment of the optimal range of Tier 1 capital requirements for banks. The orange dotted line shows that absent an effective and credible resolution regime the net macroeconomic costs of reducing capital increase sharply.