The Bank of England has published its three-stage approach to resolving any bank, building society or investment firm that fails in future.
Stabilisation is the first phase of its approach. This entails the Bank of England deciding the most appropriate method to stabilise the firm, which may mean transferring some of its business to a third party or bailing in shareholders, bondholders and other parties in order to recapitalise the firm.
Restructuring is the second phase of the approach. Once a failing firm has been stabilised, the Bank of England will need to restructure it to address the causes of failure and restore confidence.
Exit is the final phase. This is the end of the Bank of England’s involvement in resolution. Either the firm will cease to exist or it will be restructured and no longer require liquidity support.
Commenting on the publication of the approach, Andrew Gracie, executive director of resolution, Bank of England, said: “This is a significant milestone in our resolution regime. It sets out exactly how we would go about resolving a bank, building society or investment firm in practice. The failure of these firms should have the same impact as that of the failure of any other institution, ie the rest of the system is not impacted and taxpayers do not bear the cost. This is what resolution achieves.”
Resolution is the process by which public authorities can intervene to manage the failure of a financial firm.