People rely on banks in their daily lives, whether it is for looking after their money, paying for things or receiving wages.
So, if banks stopped working, the entire economy would grind to a halt. It is the Bank of England's job to make sure that the banking system works in a safe and sound way.
As part of this, we put a lot of effort into reducing the chances of a bank getting into financial difficulty in the first place.
But it is not possible to prevent all banks from ever failing.
Who pays the price when a bank goes bust?
In 14th-century Barcelona, if a bank failed, its owners would be condemned publicly by the town crier and forced to live on bread and water until they repaid those to whom they owed money.
Fast-forward to the 2008 global financial crisis, when several banks and building societies in the UK got into trouble. In the end, the Government had to step in using taxpayers' money to bail out failing banks.
Things have changed. The Bank of England has a set of tools that allow it to step in quickly where needed.
A failure today would play out in an orderly way with far less disruption to the rest of the system. And under the new set-up, the cost would fall on the shareholders and creditors of the failed bank (and potentially the banking sector), not on taxpayers.
What did we learn from the financial crisis?
It was one of the worst ever seen.
We learned two important lessons about how to deal with a failing bank:
Who deals with bank failures?
At the time of the crisis, no single authority was formally responsible for dealing with failing banks.
Who pays for bank failures?
During the crisis, public funds were used to bail out several banks and building societies in the UK.
The bailouts came at a huge cost to taxpayers. They were necessary, though, to stop very serious disruption to the UK's banking system. If that had happened, people wouldn’t have been able to pay for things or have their wages paid in the normal way.
What happens when a bank fails today?
Things are very different now.
We have powers to step in if a bank fails. We also work with banks to create 'living wills' to show how we could deal with them if they suffered a catastrophic shock.
So, if a large commercial bank did go bust today, it could do so in an orderly and safe way. The losses would fall on the bank's investors, and potentially the banking sector, not taxpayers. And if your bank failed, you could claim back up to £120,000 of your money through the Financial Services Compensation Scheme (FSCS).
The deposit protection limit rose from £85,000 to £120,000 on 1 December 2025.
These rules are designed so that even the biggest, most complex banks can fail if they become unprofitable – but they can do this without the need for taxpayer support and without causing disruption to the financial system or wider economy.
