HSBC, Barclays, Lloyds, Natwest and Britain’s other top eight banks could be wound down in a crisis without the immediate need for taxpayer cash, the Bank of England said on Tuesday following its second ‘resolvability’ check of the lenders.
Being able to “resolve” or shutter an ailing major bank without destabilising the financial system or calling on taxpayers was a core lesson from the global financial crisis of 2007-09, when many lenders had to be rescued with public money.
“Our assessment gives further reassurance that if a major UK bank were to fail today it could enter resolution safely: remaining open and continuing to provide vital banking services, with shareholders and investors – not public funds – first in line to bear the costs of failure,” the BoE said in a statement.
The post-financial crisis resolution rules were thrown into doubt last year when the global banking sector was rocked by Switzerland forcing UBS to take over struggling Credit Suisse, the deal underpinned by a 100 billion-Swiss franc ($117.7 billion) central bank loan, rather than closing down the bank.
The BoE said that its assessment found some “shortcomings” or areas for “further enhancement”, but no serious issues were uncovered that were serious enough to hamper the resolution of a lender in a crisis.
In its first test of “resolvability” of eight major banks in June 2022, the BoE concluded there were no lenders that were too big to be allowed to fail, though HSBC, Lloyds and Standard Chartered were found to have some shortcomings in planning.