The Bank of England and the Prudential Regulation Authority have set out the final major plank of the UK’s bank resolution regime, launching a consultation that will require larger lenders to publicly disclose their so-called “living wills”.
The proposed Resolvability Assessment Framework seeks to implement a credible resolution framework while building on the progress made by the UK since the financial crisis.
Banks across the world have spent recent years bolstering their capital bases and building loss-absorbing debt. Having a credible plan for how to dismantle a firm if it hits trouble is another key part of how regulators hope future failures can be managed.
The RAF places responsibility on banks to demonstrate their preparedness for resolution and show how any risks would be addressed, not just to the BoE but also publicly.
The BoE said increased transparency should help market participants make more informed investment decisions, based on accurate pricing of resolution risks.
Lenders will be required to submit assessments of their resolution preparations to the PRA by September 2020 and publicly disclose a summary of the assessments by June 2021. This would apply to UK banks and building societies with at least £50bn in retail deposits.
The costs of implementing the proposals for the affected firms, estimated at between £3.8m and £6.3m per year, are “proportionate” to the benefits to the broader economy, the PRA said. The benefits of having a credible resolution regime in place are estimated at between £6.1bn and £18.3bn per year.