Resolution is a way to manage the failure of a bank, building society, central counterparty or certain types of investment firm. We use it to minimise the impact on depositors, the financial system and public finances.
Using resolution to manage bank failure in an orderly way, allows us to:
In 2008, banks in many countries were in financial distress. Governments – including the UK’s – felt they had no choice but to bail the banks out. If a large bank had failed then, it would have caused serious problems for many people, businesses and public services. These banks were ‘too big to fail’.
After the financial crisis, the UK, like many other countries, took action so there would be better options if a large bank were to fail in future. The UK established a framework for resolution (known as the ‘resolution regime’) in the Banking Act 2009.
Over time, this regime has been improved and expanded. It is consistent with international standards for resolution regimes.
Under the UK’s regime, we are the UK’s resolution authority. Our job is to work with banks to make sure we can carry out our resolution plans if they fail. Since 2009, we have used the regime for two firm failures.
‘The Bank of England’s approach to resolution’ sets out how the resolution regime works, what we do as the UK resolution authority, and how we would resolve a firm.
We work to make sure that by 2022, all major UK banks meet the standards we have set them to ensure our resolution plans will be effective.
The final major piece of the UK resolution regime for banks is the Resolvability Assessment Framework (RAF). The RAF makes resolution more transparent and better understood. It requires banks to prepare for their own failure, with the major UK banks publishing information about the steps they have taken. The Bank, as UK resolution authority, also publishes its own assessment of each of the major UK Banks. We published the final RAF policy in July 2019 and the first public statement on 10 June 2022.
The UK’s resolution regime applies to banks, building societies, and certain investment firms. On this page we use ‘firms’ to cover all the above.
The resolution regime does not apply to credit unions. When a credit union fails, depositors are paid out by the Financial Services Compensation Scheme (FSCS) up to £85,000 per depositor per credit union.
In 2014, the resolution regime was extended to include (CCPs). The approach to a CCP resolution differs to the approach to a firm resolution, reflecting CCPs’ specific characteristics.
We work closely with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The PRA and FCA work to ensure firms are safe and sound, and fair to customers.
The PRA is a part of the Bank of England. We have published a statement to explain how our resolution and supervision responsibilities are divided.
The Financial Services Compensation Scheme (FSCS) protects eligible customers of authorised financial services firms that have failed. We work with the FSCS, particularly when we have concerns that a firm is at risk of failure and when firms fail, to ensure that those eligible depositors are protected (up to £85,000).
We work with HM Treasury (HMT). The way we work with them is documented in HMT’s Memorandum of Understanding.
The UK is a global financial centre, home to both UK and international banks. We work closely with international regulators to ensure we could manage the failure of a UK firm with operations overseas. We also support regulators in other countries should they face the failure of a foreign firm that operates in the UK.
Most UK firms would be put into if they failed, because that wouldn’t disrupt the economy or financial system. Eligible depositors in failed firms would either receive compensation from the FSCS within seven days or have their accounts transferred to another firm.
Our resolution regime operates alongside the depositor protection regime. If a firm’s failure would otherwise result in losses for depositors, the FSCS will protect eligible depositors, up to £85,000. In some specific situations, it can be more eg if a depositor has just sold a house.
But the largest or most complex firms could not go into insolvency. We would need to resolve those to protect the UK’s vital services and financial stability. In these cases, shareholders and certain creditors take the losses.
You can watch our video on what happens when a bank fails and what we do.
We are responsible for planning for and executing a resolution.
We plan for the resolution of every bank, building society and some investment firms in the UK, and review these plans annually.
A resolution plan contains two main elements. First, a ‘preferred resolution strategy’, which identifies the tools we would use to resolve the firm. Second, a 'resolvability assessment' which identifies what may impede us from doing that.
Many firms share some of the factors that make a resolution difficult. We highlight these and require firms to take action to address them. Our approach is designed to be proportional. So large or complex firms have more extensive requirements. This is because they’re harder to resolve and would be more disruptive to the economy if they failed in a disorderly way.
The PRA or the FCA determine if a firm is failing, or likely to fail, after consulting us. We then consult the PRA, the FCA and HMT before we judge that a firm needs to enter resolution.
If a firm fails, we are responsible for executing the resolution.
The Banking Act 2009 sets objectives we must have regard to when we prepare for and carry out resolutions.
These are to:
HMT provide guidance on how and when the authorities (the Bank of England, the PRA, the FCA, the FSCS and HMT) will use the regime in their Special resolution regime code of practice.
On 7 May 2020 the Bank and PRA published a statement on resolution measures and Covid-19.
These measures are aimed at alleviating operational burdens on PRA-regulated firms in response to the Covid-19 outbreak.
In light of these decisions, the Bank remains committed to the strategic importance of the resolution agenda and delivering resolvability.
We will continue to work with firms to ensure progress on resolvability continues to be made, whilst recognising the impact on firms of the current disruption caused by the Covid-19 outbreak.
The UK’s transition period from the EU ended on 31 December 2020. The Bank of England has a cooperation agreement with the Single Resolution Board, which is the resolution authority for the Banking Union.
We ran consultations between October 2018 and January 2019 on our proposals to ensure there would be an operable legal framework after the UK leaves the EU.
You can read the feedback we got on our resolution proposals on page 41 of our Amendments to financial services legislation under the European Union (Withdrawal) Act 2018 (PS5/19).
We encourage you to read our instrument, direction and guidance on transitioning to post exit rules and standards.
The Bank extended on 4 January 2022 transitional relief for Goldman Sachs on certain onshored CRR requirements applicable to internal TLAC.
The purpose of this direction is to continue to apply, in respect of Goldman Sachs International and Goldman Sachs Group UK Limited, the pre-EU exit position with regard to the eligibility of non-CET1 own funds and eligible liabilities instruments to meet internal TLAC requirements under the onshored Capital Requirements Regulation (CRR), specifically the ability to issue such instruments directly or indirectly through an EU or UK based intermediate company. This is to allow the firm more time to restructure its internal TLAC and MREL resources in an orderly manner in order to meet the post-EU exit requirements for internal own funds and eligible liabilities set out in the onshored CRR.
The transitional relief as extended will end on 31 December 2022, beyond which the Bank does not have the power under the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 to extend any transitional relief further.
The Bank is satisfied that the making of the direction does not adversely affect the advancement of its financial stability objective (set out in section 2A(1) of the Bank of England Act 1998).
The Bank will consider granting similar relief, in relation to Article 92b of the onshored CRR, to any firm in a similar position.
To be ‘resolvable’ a firm needs to have arrangements and plans in place so we can carry out a resolution if it fails. We think about resolvability in terms of whether a firm:
We have published policies and rules in relation to barriers to resolvability.
Each year we assess the barriers to implementing the strategy and meeting our statutory objectives for each firm. If necessary, we can make a firm remove these barriers to make them more resolvable.
For cross-border banks, we work closely with authorities in other jurisdictions to ensure a co-ordinated and co-operative approach. This includes co-ordinating on developing policies relating to resolution.
When the firm is a UK firm, we are the ‘home’ resolution authority and responsible for ensuring the failure of the whole banking group can be achieved in an orderly way.
For a foreign firm that operates in the UK, we are a ‘host’ resolution authority, and our role is to support the firm’s home resolution authority in preparing for, and where necessary implementing, a resolution.
We develop a resolution plan for each UK bank, building society, and certain investment firms. Each plan sets out the actions we would take if a firm failed. We have resolution plans for around 400 firms. For the large majority of these firms, the plan is to permit it to enter insolvency and rely on FSCS protection.
We review these plans every year and update them if necessary.
We identify the preferred resolution strategy for each firm. That depends on things like how much harm its failure would cause to the wider economy and what kind of structure it has.
The three main strategies are:
This is our preferred strategy for the largest firms that provide vital services to the UK economy.
The firm’s equity is written off, and debts written down, to absorb losses. Then it is recapitalised – the debtholders whose debt was written down are issued equity and become the new shareholders. In the medium-term, it would be restructured to address the causes of failure and restore market confidence.
Preferred for a medium-sized firm that could credibly have a buyer for all or part of it.
The firm is sold immediately or after a short period. If it takes a short period, then its critical functions are transferred to a temporary ‘bridge bank’ controlled by the Bank of England, before being sold on.
Preferred for a firm we think could be put into insolvency without risking our statutory objectives to protect financial stability and depositors.
The firm would enter into a form of insolvency. The FSCS would compensate eligible depositors up to £85,000, or fund a transfer of their accounts to a healthy firm.
We have a number of tools to implement these strategies. Find more details in The Bank of England’s approach to resolution.
Firms with a resolution strategy that involves bail-in or partial transfer must maintain sufficient equity and debt resources that can absorb losses and provide for recapitalisation in resolution.
MREL (minimum requirement for own funds and eligible liabilities) is the minimum amount of equity and subordinated debt a firm must maintain to support an effective resolution. This is a separate to the capital requirements set by the PRA.
For debt or equity to count to MREL, it must meet specific conditions. These conditions ensure we could depend on that equity and debt to support a resolution.
MREL ensures that investors and shareholders – and not the taxpayer – absorb losses when a firm fails. We set MREL to reflect how we would expect to resolve a firm if they failed. The biggest and/or most complex firms have the highest MRELs – reflecting that they would be more disruptive if they failed in a disorderly way.
We have published our policy on setting MREL and we disclose what MRELs we have set for the largest firms.
In a resolution, we need to be able to quantify the losses the firm faces and the resources it has to pay for these losses (including MREL). Our policy on valuations makes this possible, and so complements the MREL policy.
The Banking Act 2009 says a firm has entered resolution when:
If we wanted to use one of the other powers (bail-in or transfer), we must also determine that it would be necessary in the public interest – which includes that we could not meet our resolution objectives to the same extent by placing the firm into a modified insolvency instead. We will consult the PRA, FCA and HMT before deciding that these conditions are met.
If a firm fails to meet the public interest test, we place it into modified insolvency.
As a last resort, HMT can transfer a failing firm into public ownership or make a public equity injection.
It is slightly different process for a CCP. In the Bank of England’s role as the CCP’s supervisor, we would decide if the CCP was failing or likely to fail. Then, in the Bank of England’s role as the resolution authority, we would decide if it were reasonably likely that action could be taken that would result in the CCP no longer failing or being likely to fail, after consulting HMT.
The Resolvability Assessment Framework (RAF) is a policy framework that makes banks responsible for their preparations for resolution. The major UK banks need to disclose a summary of their preparations for resolution, with the Bank making its own public statement on these firms’ preparations. This will provide more transparency to investors and the public on these firms’ resolvability.
The Bank of England and PRA published the final RAF policy in July 2019, following consultation.
The Bank published its first public statement on the resolvability of the major UK banks on 10 June 2022. These banks are Barclays plc, HSBC Holdings plc, Lloyds Banking Group, Nationwide Building Society, NatWest Group plc, Santander UK Group Holdings plc, Standard Chartered plc and Virgin Money UK plc. The Bank’s public statement explains how the Bank undertook the assessment and summarises thematic findings and the assessment for each of the firm’s ability to achieve the three resolvability outcomes, as set out in the Resolvability Assessment Framework. Firms have also published summaries of their own preparations for resolvability.
We resolved Dunfermline Building Society over the weekend of 28 to 29 March 2009. We used our resolution powers under the Banking Act.
We conducted a sales process, in which the retail and wholesale deposits, branches and residential mortgages (other than social housing loans and related deposits) were transferred to Nationwide Building Society.
Some other assets – a portfolio of social housing loans – were placed into a temporary bridge bank, before eventually being sold to Nationwide.
The rest of the bank, including commercial real estate and corporate loans, was placed into a building society administration procedure.
Southsea Mortgage and Investment Company Limited was placed into modified insolvency on 16 June 2011.
In June 2018 the Bank re-affirmed that it would review the calibration of the minimum requirement for own funds and eligible liabilities (MREL), and the final compliance date, prior to setting end-state MRELs.
For the first stage of the MREL Review the Bank published a Discussion Paper (DP), having completed an initial analysis of firms’ access to the market for MREL instruments.
For the second stage of the MREL Review the Bank published a Consultation Paper (CP) setting out proposed changes to its MREL framework. The feedback and ideas gathered from stakeholders in the DP informed the Bank’s thinking on the proposals presented in the CP.
In December 2021 the Bank published a Policy Statement responding to feedback received and setting out its final changes to the Bank’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL).
The Bank’s Statement of Policy ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities’ is available.
The Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) promote cross-border cooperation between authorities, including recommending that countries provide transparent and expedited processes to give effect to foreign resolution actions.
The international nature of banking means cross-border cooperation is required to achieve legal certainty and equivalent protections for resolution measures that have effects in multiple jurisdictions. Achieving legal certainty and improving cooperation decreases the likelihood of disorderly outcomes and supports continuity in cross-border financial services.
Key Attribute 7 promotes the provision of recognition processes for a foreign resolution action. In line with this, section 89H of the Banking Act 2009 requires the Bank, once notified of a third-country resolution action related to a third-country institution or third-country parent undertaking, to make an instrument that recognises the action, refuses to recognise the action, or recognises part of the action and refuses to recognise the remainder.
Recognition by the Bank, acting as the UK’s resolution authority, provides certainty as to whether such a third-country resolution action has effect under UK law. It also can provide comparable safeguards for the institution under resolution as provided under UK law.
The Bank might have to make a recognition decision in relation to the single point of entry resolution, by bail-in of a bank with a hosted subsidiary or branch in the UK.
Alternatively, a third-country resolution authority might write down liabilities governed by UK law. The Bank may be asked to make a recognition decision in this situation.
The Bank may also have to recognise the transfer of property located in the UK.
In addition to recognition, the Bank also has the ability to support a resolution carried out by a third-country resolution authority (for example, by ordering a transfer of property in the UK to a bridge institution established by the third-country resolution authority).
This is not an exhaustive list of all possible circumstances when the Bank might have to make a recognition decision.
A recognition decision must be made where the Bank is notified of a third-country resolution action, related to a third-country institution or third-country parent undertaking. Broadly, this is an action to manage failure or likely failure of such institutions under the law of another country or territory outside the UK, which is broadly comparable in terms of objectives and anticipated results to a resolution carried out under the UK resolution regime.
A “third-country institution” is an institution established in a country or territory other than the UK that would, if it were established within the UK, be regarded as a bank, building society, credit union or investment firm.
A “third-country parent undertaking” is a parent undertaking, parent financial holding company or a parent mixed financial holding company established in a country or territory outside the UK.
In order to make a recognition decision, the Bank must decide whether the third-country resolution action is broadly comparable in terms of objectives and anticipated results to a resolution carried out under the UK resolution regime (meaning the exercise of a stabilisation option in relation to a corresponding entity in the UK). Where the third-country action is not of this nature, other options for cross-border assistance may be available through the UK courts.
The Bank may only make a recognition decision with the approval of HM Treasury.
If the resolution action meets these tests, recognition of the action (or part of it) may be refused only if the Bank and HM Treasury are satisfied that one or more of the following five conditions are satisfied:
Effective prior engagement between the third-country resolution authority and the Bank will help support the transparent and expedited process envisaged in the Key Attributes. Therefore, the Bank encourages third-country resolution authorities to engage the Bank ahead of taking any resolution action that may require action from the Bank, including recognition. This gives the Bank time and flexibility to work with the third-country resolution authority when assessing the recognition request and supporting materials, and aids swift decision-making.
Third-country resolution authorities could also consider recognition as part of business-as-usual resolution planning and engagement. This would allow third-country resolution authorities, host and any other relevant authorities to consider the information and decision making that may be required in advance. In the event that the third-country resolution authority is unable to engage ahead of taking a resolution action, the Bank encourages the home authority to engage as soon as possible after taking the measures.
The information provided to the Bank may be shared with HM Treasury given their role in deciding whether to approve the Bank’s recognition decision.
To date, the Bank has made one recognition decision concerning a third-country resolution action. In May 2021, the Bank decided to recognise the bail-in of four loans governed by English law as part of the resolution of PrivatBank by the National Bank of Ukraine.
Interested authorities are encouraged to contact the Bank using the email address below before submitting any notification of third-country resolution action. The Bank will then provide guidance on the necessary information that should be included in the request. In any case, the Bank reserves the right to ask for additional information or make further enquiries should we consider it necessary to inform a recognition decision.
Further information or enquiries should be directed to RD-Recognition@bankofengland.co.uk.
10 June 2022: The Bank published the findings from its first assessment of the resolvability of the major eight UK firms as part of the Resolvability Assessment Framework. In parallel, the major eight UK firms also published their own public disclosures on their preparations for resolution.
14 December 2021: The Bank, as Resolution Authority, has published firm-specific interim and end-state MREL disclosures for all firms for which the Bank has communicated an MREL above capital requirements.
3 December 2021: The Bank, as Resolution Authority, has published a:
25 November 2021: Today we published CP21/21 ‘Operational Resilience and Operational Continuity in Resolution: CRR firms, Solvency II firms, and Financial Holding Companies (for Operational Resilience)’, relevant to UK banks, building societies, PRA-designated investment firms, financial holding companies, mixed financial holding companies, UK Solvency II firms, and the Society of Lloyd’s and its managing agents. This consultation closes on Friday 14 January 2022.
8 October 2021: Today we published CP20/21 ‘Trading activity wind-down’, to all PRA-authorised UK banks, their qualifying parent undertakings and PRA-designated investment firms that are engaged in trading activities, and relevant third country branches. This CP is also relevant to policymakers and practitioners that would expect to be involved in a firm’s resolution. This consultation closes on Friday 21 January 2022.
22 July 2021: July 2021 resolution publications
28 May 2021: The Bank and the PRA published updates to OCIR policy and the RAF:
We have also published a new webpage listing the main policy documents related to the Resolvability Assessment Framework.
24 February 2021: We published a letter from Dave Ramsden to the CEOs of the major UK banks on firms’ Resolvability Assessment Framework preparations.
21 December 2020: The PRA published PS28/20 ‘Bank Recovery and Resolution Directive II’, which provides feedback to CP18/20 ‘Bank Recovery and Resolution Directive II’ and includes two final PRA Rules. This PS is relevant to Bank Recovery and Resolution Directive (BRRD) undertakings.
18 December 2020: The Bank has announced an extension for certain firms to meet their end-state deadlines for MREL and their resolvability deadlines under the Resolvability Assessment Framework (RAF). These announcements are being made in conjunction with the publication of a Discussion Paper, ‘The Bank of England’s review of its approach to setting a minimum requirement for own funds and eligible liabilities (MREL) - Discussion Paper’.
7 December 2020: The PRA published PS25/20 ‘Simplified Obligations for recovery planning’. This PS is relevant to PRA-authorised UK banks, building societies, PRA-designated UK investment firms, and their qualifying parent undertakings (firms), to which the Recovery Plans Part of the PRA Rulebook applies. The implementation date is 7 December 2020.
28 October 2020: The Bank of England (the Bank) and the Prudential Regulation Authority (PRA) are consulting on a package of proposals relating to resolution policy.
The PRA published the following Consultation Papers (CPs):
The Bank published the CP, ‘Updates to the Bank of England’s approach to assessing resolvability’. This is related to CP19/20 and CP20/20, and is relevant to firms for which: (i) the Bank, as home resolution authority, has notified that their preferred resolution strategy is bail-in or partial-transfer; or (ii) the Bank has notified, as host resolution authority, that they are a ‘material subsidiary’ of an overseas-based banking group for the purposes of setting internal minimum requirement for own funds and eligible liabilities (MREL).
CP18/20 closes on Monday 30 November 2020. CP19/20, CP20/20, and the Bank CP close on Sunday 31 January 2021.
7 May 2020 – We published a statement on resolution measures and Covid-19.
10 June 2019 - We published a notice on revisions to EU legislation (CRR II).
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