The Bank of England has revealed that major UK lenders could be safely wound down during a financial crisis without the need for taxpayer-funded bailouts. This conclusion comes after a series of rigorous checks designed to test the resilience and preparedness of these financial institutions. The checks, which are part of the Bank of England’s regular stress-testing framework, ensure that banks have the necessary mechanisms in place to manage their own failures.
This would prevent a repeat of the 2008 financial crisis, when the collapse of several large banks led to substantial government intervention and bailouts. In a statement, the BoE emphasized that these measures reinforce the stability and resilience of the UK’s financial system. “The ability to wind down systemic banks in an orderly manner without government support is a significant step forward in ensuring financial stability,” the statement said.
The evaluation reveals that major UK banks have made significant progress in their preparations for resolution. This includes addressing outstanding issues from prior reviews and embedding resolution preparations into their daily business practices. For the first time, the Bank of England conducted more detailed assessments focusing on whether these banks have adequate financial resources for resolution.
No deficiencies or substantive impediments to resolvability were identified. However, the assessment highlighted new areas for improvement, suggesting that achieving and maintaining resolvability is an ongoing process.
uk banks’ crisis readiness tested
Major UK banks are expected to act on the feedback from both the latest and previous assessments and continuously enhance their resolvability capabilities. Today’s findings reassure that a major UK bank can safely enter resolution if needed, continuing to provide essential banking services, with shareholders and investors—rather than public funds—bearing the failure costs. While the system cannot be fully resilient to all possible shocks, resolution offers a better alternative to bailing out a failed bank with public funds.
Reflecting on the progress made, the Bank of England plans to delay the third assessment by a year to 2026-27, allowing for deeper testing. In the interim, the Bank and the Prudential Regulation Authority (PRA) will continue to collaborate with the major UK banks to ensure ongoing progress in resolvability. The UK’s resolution of Silicon Valley Bank UK in March 2023 demonstrated the efficacy of the resolution regime in protecting financial stability.
As the resolution authority, the Bank of England uses a flexible toolkit to address failing banks based on the conditions and time available, a crucial component of post-global financial crisis reforms to safeguard the public purse. The framework remains central to this approach, requiring banks to achieve three key outcomes: having adequate financial resources, continuing to do business through resolution and restructuring, and maintaining effective coordination and communication. The ongoing commitment to and engagement with the process by the major UK banks is essential to maintaining a resilient financial system.
The Bank of England and the PRA are committed to further detailed analysis of banks’ resolvability in future assessments. The upcoming focus will be on the Continuity and Restructuring outcome, ensuring banks can effectively plan and execute resolution strategies, ultimately addressing the ‘too big to fail’ problem. By implementing thorough assessments, the Bank of England continues to strengthen the financial stability of the UK’s major banks, ensuring they can withstand and manage future crises with minimal risk to public finances.
