Today, the Bank of England has published its first assessment of the progress
the eight major UK banks have made under the Resolution Assessment Framework.
This framework
The RAF, is the Bank's approach to assessing whether larger firms
operating in the UK
are prepared for resolution.
Resolution is where banks that get into serious difficulties
can remain open and continue to provide vital banking services to the economy,
with investors not taxpayers first in line to bear the costs.
Planning for resolution does not mean
firms are likely not to meet the PRA's safety and soundness standards.
But it is important their preparations are ready to use if needed.
So we assess their resolveability on an ongoing basis.
These eight firms have made a great deal of progress in their preparations.
They're in a fundamentally better place than in the global financial crisis of 2007.
We've identified areas where further work is needed by firms.
To be resolveable, firms need to achieve three outcomes.
Firstly, having adequate financial resources in the context of resolution.
This means having enough loss absorbing capacity, liquid resources
and financial forecasting capabilities for a resolution
Second, being able to continue to do business through the resolution process,
keeping the doors open for depositors and businesses through the bail-In period
and then through the restructuring phase that follows.
And thirdly, being able to communicate and coordinate effectively,
communicating effectively internally and with the authorities and markets.
So the resolution and subsequent restructuring are orderly.
Our assessment does not make pass or fail judgments, as resolveability
is a spectrum, not a binary judgment.
The findings are also specific to individual firms
and cannot be compared directly with one another.
Given the range of business models and scale of businesses involved.
In our assessment, we used five terms
to explain each firm's ability to achieve each of the three resolvability outcomes,
and we've used the following terms in our report:
No material issues identified
Area for further enhancement,
shortcoming, deficiency, and finally,
substantive impediment to resolution.
The Bank has not identified
any deficiencies or substantive impediments to resolution
in the first RAF assessment.
Such issues would be serious and likely
to affect the Bank's ability to execute a resolution.
We have found shortcomings for three banks.
These are issues that may unnecessarily complicate a resolution.
The firms have committed to address these issues in their disclosures.
We have also found less significant areas for further enhancement
for six firms, to address in their ongoing resolveability work.
Banks will need to keep their preparations for a resolution ready
so the Bank and the PRA have made resolveability an ongoing obligation.
The Bank will repeat its RAF assessment in 2024 to assess the progress
firms have been making in addressing today's findings.
This approach is consistent with the Bank's aim of maintaining
a fit and ready resolution regime.
No matter how much preparation is done,
resolution is always likely to be complex to execute and the system cannot
be fully resilient to all possible shocks
that threaten financial stability.
But the findings show that if a major UK bank
can no longer operate safely, it could, through resolution,
remain open and continue to provide vital banking services to the economy.
With investors not taxpayers first in line to bear the costs.