Bank Resolution (Recapitalisation) Bill
- The Bank Resolution (Recapitalisation) Bill will enhance the
UK's resolution regime, providing the Bank of England with a more
flexible toolkit to respond to the failure of small banks.
- It ensures that, where failing banking institutions require
intervention, certain costs of managing their failure do not fall
to taxpayers. It strengthens protections for public funds and
promotes financial stability, whilst supporting economic growth
and competitiveness by avoiding new upfront costs on the banking
sector
What does the Bill do?
- The Bill introduces a new mechanism to allow the Bank of
England to use funds provided by the banking sector to cover
certain costs associated with resolving a failing banking
institution and achieving its sale in whole or in part.
- The Bill is designed in particular to respond more
effectively to small bank failures where resolution is judged to
be in the public interest by:
-
expanding the statutory function of the Financial
Services Compensation Scheme (FSCS) – the body
responsible for paying out depositors in a bank insolvency.
The Bill will require the FSCS to provide funds to the Bank
of England upon request, to be used where necessary to
support the resolution of a failing bank.
-
allowing the FSCS to recover the funds provided by
charging levies on the banking sector, similar to
the current arrangements for funding depositor pay-outs in
insolvency. However, following consultation the Government
has decided that credit unions will not be in scope of this
levy.
-
giving the Bank of England an express ability to
require a bank in resolution to issue new shares,
facilitating the use of FSCS funds to meet a failing bank's
recapitalisation costs.
- Taken together, these measures give the Bank of England a
more flexible toolkit to respond to small bank failures in a way
that promotes financial and economic stability and strengthens
protections for public funds, whilst avoiding new upfront costs
on the banking sector or additional costs for taxpayers.
Territorial extent and application
- The Bill will extend and apply UK-wide.
Key facts
- The UK has a robust resolution regime for banking
institutions which was developed in the wake of the Global
Financial Crisis. This regime was used in March 2023 when the
Bank of England used its powers under this regime to transfer
Silicon Valley Bank UK to HSBC.
- Whilst a good outcome was achieved in this case, it exposed
the potential challenges of managing the failure of a smaller
bank where intervention is judged to be in the public interest,
rather than placing the bank into insolvency. In particular,
risks to taxpayers could occur where a failing small bank
requires intervention and there is no credible
buyer. The Bill aims to address these risks.
