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UK banks no longer too big to fail, says BoE

Economy Jun 10, 2022 07:42AM ET
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© Reuters. FILE PHOTO: A man stands outside the Bank of England in the City of London, Britain April 19, 2017. Sterling basked in the glow of a six-month high following Tuesday's surprise news of a snap UK election. REUTERS/Hannah McKay

By Iain Withers and Sinchita Mitra

LONDON (Reuters) - The Bank of England is satisfied lenders have taken steps to ensure they are no longer "too big to fail" in any future crisis, it said on Friday, though it did find shortcomings at three leading banks.

The BoE is aiming to stop banks from requiring taxpayers to bail them out, as happened in the 2007-09 global financial crisis.

The central bank said it was satisfied overall that banks could be wound down safely while keeping vital services open, with shareholders and investors in line to bear the costs rather than taxpayers.

In its first public assessment of how failing lenders could be dismantled in a crisis, the BoE said it had also identified "areas of further enhancement" for six companies.

The three banks found to have shortcomings were Lloyds (LON:LLOY), Standard Chartered (OTC:SCBFF) and HSBC.

All three were found not to have produced sufficient analysis of their liquidity needs were they to be wound down.

Globe-spanning banks HSBC and Standard Chartered were also found to have failed to produced up-to-scratch restructuring plans.

The central bank said the shortcomings identified would complicate its ability to undertake a resolution but it could still do so safely.

In separate statements on Friday the three banks said they were making enhancements to address the issues identified and were improving their so-called resolution plans.

"Safely resolving a large bank will always be a complex challenge so it's important that both we and the major banks continue to prioritise work on this issue," said Dave Ramsden, the Bank of England's deputy governor for markets and banking.

The other lenders included in the review were Barclays (LON:BARC), NatWest, Nationwide, Santander (BME:SAN) UK and Virgin Money (LON:VM) UK.

Analysts cautioned that it is unclear how well the plans would work if they ever had to be put into action.

"Some will be sceptical as to whether the resolution framework would work exactly as intended in practice in the event of a failure of a high street lender, given the enormous losses it could result in for shareholders and debt investors," said Goodbody banking analyst John Cronin.

The BoE said it would repeat its assessment in 2024 and review progress made by the lenders every two years after that.

The central bank has powers to force lenders to make structural changes if it feels there are barriers to fast and orderly closure.

Publication of the review was delayed by a year to free up lenders to deal with the COVID-19 pandemic.

In 2018 the U.S. Federal Reserve said that the U.S. arm of Barclays had shortcomings in its resolution plan, but not deficiencies that required a bigger capital buffer.

UK banks no longer too big to fail, says BoE

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