Planning to fail – what resolution is and why it matters

Introduction

At its core, a good resolution regime is about creating options that allow you to work flexibly in response to a stress and balance the delicate trade-offs between the private and public interests involved.

As a global financial centre, we host many of the world’s largest banks in the UK as well as UK firms which operate globally. In this context, as resolution authority we face issues which span national borders and therefore cannot be addressed by national solutions alone.

Prior to the 2007–08 global financial crisis (GFC), there was no resolution regime in place. Concern around contagion in the GFC and the lack of suitable tools for the authorities to deploy contributed to large bailouts of banks to prevent further damage to the financial system, and the UK and global economy.

These bank failures revealed the need for a series of prudential and macroprudential reforms, including establishing robust resolution mechanisms. In the UK this led to the temporary Banking (Special Provisions) Act 2008, followed by the Banking Act 2009, landmark legislation which marked a turning point in the UK’s approach to dealing with the threat posed by failing banks to UK financial stability.

Internationally, G20 leaders launched a comprehensive reform agenda at the London and Pittsburgh summits in 2009, committing to end ‘too big to fail’ (TBTF) and establish effective resolution arrangements. In 2011, the newly established Financial Stability Board (FSB) developed the Key Attributes of Effective Resolution Regimes for Financial Institutions as the international standard for resolution frameworks applicable to institutions whose failure could threaten global financial stability. Since then, national authorities and the FSB have advanced cross-border collaboration to design credible resolution strategies and ensure systemic banks are resolvable under stress.

Resolution strategies

Resolution frameworks are not designed to prevent a firm from failure but instead to preserve its critical economic functions and mitigate contagion from disorderly liquidation. In the UK, much like other jurisdictions, we use three broad resolution strategies in our planning: debt-for-equity restructuring (known as ‘bail-in’), transfer (to a private sector purchaser or to a temporary Bank of England-owned bridge bank, pending onward sale to the private sector) and bank/building society insolvency procedure (BIP) that prioritises pay-out to depositors. When setting firms’ strategies, the Bank must keep in mind where the potential cost to recapitalise a failed firm should sit.

Effective execution of resolution plans requires sufficient access to liquidity and to loss-absorbing capacity. These developments mark a significant evolution in financial stability policy, embedding mechanisms to manage systemic bank failures by safeguarding continuity of essential services without resorting to taxpayer bailouts.

Firms subject to a resolution strategy that involves the bail‑in of their debt are required to meet minimum requirements as to the type and amount of loss absorbing debt resources they hold on their balance sheet. This minimum requirement for own funds and eligible liabilities (MREL) means they are effectively self‑insuring against failure. These resources are used to recapitalise the firm so that the causes of failure could be addressed through subsequent restructuring of the business, potentially over a number of years. This strategy would be deployed for the largest, most complex firms. In line with our updated MREL policy, effective as of 1 January 2026, firms with more than £40 billion in total assets should expect to be set a bail-in strategy.

The transfer strategy is designed to allow the whole firm, or part of it, to be sold to a private sector purchaser. Where a purchaser cannot be found, the Bank would take temporary control of the firm using a bridge bank entity, pending a further sale. Our updated policy, outlines that, on a firm-by-firm basis, the Bank will assess whether a bail-in or transfer strategy is most appropriate for institutions who are between £25 billion and £40 billion in total assets. Factors under consideration include the simplicity of the firm’s business, whether the business would likely be attractive to a private sector purchaser, and whether it has systems in place that are able to provide the necessary information to support a transfer.

Where we consider that the failure of a smaller firm is unlikely to cause disruption to the wider UK financial system and the firm does not provide significant amounts of transactional banking services or other critical functions – with the revised policy outlining that these are likely firms with total assets not exceeding £25 billion – we may consider insolvency to be the most appropriate strategy. In a BIP, normal insolvency is modified to prioritise payment to protected depositors by the Financial Services Compensation Scheme (FSCS) (the UK’s deposit protection scheme), or their accounts may be transferred to another firm using FSCS funds. Subsequently, the process would revert to a normal insolvency for winding up the remainder of the firm.

Which of these strategies is selected is dependent on it being necessary in the public interest. That ‘public interest test’ is guided by seven special resolution objectives, including continuity of UK banking services, protecting and enhancing UK financial stability and safeguarding public funds and FSCS-covered depositors. Statutory safeguards such as the ‘No Creditor Worse Off (NCWO)’ principle – which entitles creditors to compensation if it is assessed that they have lost more in a resolution than if the bank had been placed into insolvency – helps protect the rights of creditors. If this safeguard is breached, compensation would be paid by His Majesty’s Treasury and later recovered from the industry. This safeguard offers a means of ensuring that our actions are in line with the European Convention of Human Rights and international standards for resolution.

In a resolution, the hierarchy in which creditors are paid under the insolvency regime would be followed, and losses would be borne according to this ranking. Creating a set of rules and expectations for how shareholders, creditors and depositors are treated in failure and maintaining transparency with regards to how these would be implemented is important in ensuring market stability and depositor and investor confidence in the UK. Resolution actions are likely to have significant impacts on creditors and shareholders, so authorities being challenged on the actions they have taken is potentially likely. The authorities being challenged themselves is not a risk to a resolution action but highlights the importance of authorities being transparent ahead of time on how they will act so investors are clear on the risks they are taking.

While temporary access to public funds could be required as a last resort in severe cases, imposition of losses on shareholders and unsecured creditors ahead of the use of public funds is central to both bail-in and transfer strategies. Collectively, these strategies, objectives and safeguards create a credible framework for resolution while maintaining systemic resilience and public trust.

The introduction of MREL

MREL was introduced in the UK in 2016 as a cornerstone of the bail‑in resolution strategy. It is designed to ensure the largest and most complex firms issue sufficient equity and subordinated debt so that shareholders and investors bear the losses in a failure rather than taxpayers. MREL requires firms to hold loss‑absorbing capacity beyond the prudential capital resources they need to operate as a bank. The bail-in power enables the Bank to convert these additional resources into equity thereby enabling recapitalisation and restructuring in the event of resolution. To be credible, the MREL resources must meet strict criteria regarding amount, form, and location, including a minimum maturity of one year to ensure resources remain available during resolution planning.

Recent reforms to our MREL policy, effective from January 2026, aim to balance two important considerations. On the one hand, the value of a proportionate regime that fosters growth, innovation and competition by recognising the lower risks that smaller and less complex firms generally present to the UK’s financial stability. And, on the other, they reflect the need for greater capabilities and assurance over resolvability as complexity, size and risk in a firm grows. As part of these reforms the Bank will raise the indicative threshold for MREL to firms with £25 billion–£40 billion in assets, and periodically update these thresholds in line with nominal growth. Requirements for firms subject to transfer strategies have also been removed. The changes are also made in light of the new industry‑funded safety net established under the Bank Resolution (Recapitalisation) Act 2025 (BRRA25), which allows the Bank to recover losses in a small bank failure from industry after a resolution. While MREL remains central to ensuring bail‑in feasibility for globally significant institutions, most UK banks fall outside its scope which allows smaller firms greater flexibility before potentially transitioning into bail‑in strategies.

The implementation of the Resolvability Assessment Framework (2019)

The Resolvability Assessment Framework (RAF), introduced in the UK in 2019, represents a significant advancement in the UK’s post-crisis regulatory architecture aimed at ending TBTF. The RAF requires UK firms, particularly the largest and most complex banks, to take ownership of removing barriers to the effective use of our resolution powers (referred to as their ‘resolvability’). They do this by submitting self-assessments against three core outcomes: maintaining adequate financial resources, sustaining business continuity during resolution and restructuring, and ensuring effective communication and co-ordination. Public disclosures by major firms enhance transparency and market discipline, while proportionate requirements for smaller institutions reflect their lower systemic risk.

The resolution regime is designed not only to facilitate orderly resolution but also to act as a credible deterrent, incentivising firms under stress to pursue market-based solutions with their shareholders and creditors such as capital raising or restructuring. Its framework emphasises operational readiness, contingency planning, and timely information provision, ensuring authorities can execute resolution transactions effectively. By embedding resolvability as an ongoing obligation rather than a compliance exercise, the RAF strengthens systemic resilience, supports investor confidence, and provides authorities with credible options to avoid taxpayer-funded interventions. Over time, the RAF continues to evolve in response to changes in the financial system and regulatory landscape, reinforcing its role as a cornerstone of the UK’s resolution regime.

The importance of flexibility in resolution strategies

Flexibility in resolution planning has become a cornerstone of the UK’s post-crisis framework, recognising that no two bank failures unfold in the same way and that multiple strategies may need to be prepared in parallel. The failure of Silicon Valley Bank UK (SVBUK) in March 2023 highlighted three key lessons:

• The speed at which modern bank runs can occur should not be underestimated. Technological change and faster information dissemination can leave institutions vulnerable to very rapid runs, with deposit outflows significantly exceeding historical rates. This can leave authorities with a matter of days to execute a resolution. As such, the more preparation that can be done – and testing under time pressure – ahead of a live case, the better.
• No two resolution events will be the same and retaining optionality is vital. It is often the case that multiple resolution strategies need to be prepared for in parallel. This ensures that the resolution authority can adapt its approach as the situation evolves and ensure the resolution objectives can be met with the best outcome, both for customers of the bank in resolution and for the UK’s financial stability. In the case of SVBUK, our willingness to remain flexible allowed us to prepare both for a BIP and transfer in short order.
• Continuity of banking services and minimising disruption to deposit access is critical. The FSCS provides up to £120,000 of deposit protection per eligible depositor, and cross-authority work in the UK has been undertaken to reduce the time it may take for payment to be made to customers in an insolvency. However, particularly for customers who use their accounts to make regular payments, there may be too great an interruption in their ability to access all their deposits or account services in a modified insolvency.

The failure of SVBUK highlighted the need to have more options in the event that some smaller UK banks and building societies that do not hold MREL end up presenting a bigger risk to our resolution objectives at the point of failure. This led to changes to the regime made, as mentioned earlier, under the BRRA 25, which allow the FSCS to contribute funds to support the recapitalisation of smaller firms rather than let the firm fall into a destabilising insolvency. While MREL acts as self-insurance for our largest most complex firms, the BRR25 tool would act as a collective industry-funded insurance, or safety net, for smaller firms. Crucially this would be paid for by industry. Together with enhanced liquidity frameworks, these reforms underscore the importance of preparation, proportionality, and adaptability in resolution. By maintaining the ability to deploy bail-in, transfer, bridge bank, or insolvency strategies as appropriate, the UK resolution regime ensures resilience, minimises disruption, and protects public funds in the face of increasingly complex and fast-moving crises.

Co-ordination and international co-operation – the case of Credit Suisse

Resolution of globally active financial institutions is inherently cross-border, requiring extensive international co‑operation and well-developed relationships among home and host authorities. Crisis management groups (CMGs) comprising experts from the home and host resolution and supervisory authorities have become central to this process, evolving from policy sharing forums into operational platforms for testing and executing resolution strategies under time pressure.

These groups were activated when it became clear that it was necessary to prepare for the potential failure of Credit Suisse. The Bank and other authorities had three critical considerations in mind from a resolution perspective:

• cross‑border co‑operation is essential for each authority to achieve its objectives;
• legal recognition processes must be understood in advance to avoid barriers to execution; and
• communications must be well‑developed and co‑ordinated across jurisdictions to sustain public confidence.

Although the Swiss authorities ultimately determined that a going‑concern sale to UBS would best stabilise the situation instead of bailing-in the firm, the event demonstrated the Bank of England’s readiness for a cross-border failure. As the host authority for the firm, meaning that the firm’s parent bank was not based in the UK, we were able to show that in practice we would have been able to give legal force in the UK to resolution actions taken by an overseas home authority.

In the case of global systemically important bank resolution, CMGs are a key forum for resolution authorities and supervisors to co-ordinate and prepare for potential failure. While these initially started as effective forums to share and, where needed, agree a resolution strategy, we are increasingly seeing them used to exercise and test key elements of executing a resolution transaction. It is critical that the firm, home and host authorities all know what key actions they have to take are, in order to facilitate the resolution – potentially under significant time pressure.

The importance of testing and exercising

Effective resolution planning requires not only robust frameworks but also rigorous testing and exercising to ensure credibility in practice. While each resolution scenario is unique, well‑developed playbooks and trained personnel are essential to deliver timely and orderly interventions. Since the introduction of the RAF, firms have increasingly adopted fire drills and simulation exercises to operationalise their capabilities, embedding preparedness as an ongoing obligation rather than a compliance exercise.

Testing is equally critical for authorities. Cross‑authority exercises, both domestic and international, prior to the events of SVBUK and Credit Suisse proved instrumental in enabling the Bank to manage complex contingency planning under pressure. Dynamic elements of resolution – such as weighing alternative strategies as new information emerges – are particularly well suited to rehearsal through structured exercises, which also generate step‑by‑step playbooks for live use. Beyond technical readiness, testing fosters trusted relationships among domestic and international authorities, strengthening co‑ordination in times of stress. Initiatives such as the Trilateral Principal Level Exercise with US and European Union counterparts exemplify how peacetime collaboration builds resilience for cross‑border resolution events.

Future evolution of the framework

A significant amount of work has been undertaken to strengthen the UK’s approach to banking failure and resolution. However, future crises may not resemble those of the past. Risks are evolving alongside the external environment. Large-scale changes in technology and the rise of internet banking facilitate quicker deposit outflows, social media increases the speed at which uncertainty and instability can propagate, there is more private credit than ever before, and the cross-border payments landscape has evolved significantly.

In 2014, central counterparties (CCPs) were incorporated into the UK’s resolution regime. The Financial Services and Markets Act 2023 has since enhanced our powers in relation to a CCP resolution. Certain features of our arrangements for CCPs are the same as for banks. For example, there are similar safeguards such as the NCWO and cross-authority co-ordination and agreement is required to trigger a resolution, reflecting the different responsibilities of UK authorities. We also hold CMGs to facilitate information sharing and cross-authority co-ordination. While leveraging these commonalities is important, there are also key differences in how these firms can fail and how they can be stabilised. The introduction of the 2023 legislation gave the Bank bespoke powers for resolving CCPs (such as cash calls and contract tear-up) which we do not have for banks.

The Bank of England recognises the importance of adapting in line with a changing world and will continue to iterate our regime as appropriate.