UK’s biggest lenders are no longer ‘too big to fail’, says Bank of England | Bank of England

The UK’s biggest banks are no longer “too big to fail” and could foot the bill for their own failure, the Bank of England said, but found shortcomings at three banks including HSBC and Lloyds.

Fourteen years after the financial crisis that threatened to collapse the banking system and led to huge bailouts for taxpayers, the Bank of England’s first public assessment of lenders’ “living wills” found that even if a major UK lender collapsed, customers would still be protected would be able to access their accounts and the banks would be able to provide their services broadly as usual.

It also stipulated that shareholders and investors, rather than taxpayers, would come first in covering banks’ losses and ensuring they had enough capital to operate.

However, the bank warned that some of the biggest banks “still need to make further improvements” to avoid the chaos that ensued after the 2008 financial crisis, which forced the UK government to spend £137bn of taxpayers’ money on banking to stabilize system.

It said three lenders – HSBC, Lloyds and Standard Chartered – needed to address deficiencies that might otherwise “unnecessarily complicate” their ability to fail safely. It was found that each of the three lenders either lacked adequate financial resources or adequate data and measurements to ensure they could absorb losses without jeopardizing public funds.

Concerns have also been raised as to whether HSBC could properly restructure the business in a way that ensures services continue to be provided while authorities help wind down the lender. Standard Chartered was also singled out for failing to identify all available restructuring options.

Lloyds said it was already working to improve its ability to forecast and measure its financial resources, and HSBC said it was working with regulators to address the Bank of England’s concerns. Standard Chartered said it had committed special funds to ensure it was prepared for an orderly resolution and said that work was a “priority” for the bank.

Lenders have until 2024 – when the next assessment takes place – to fix the deficits. The assessment covered a total of eight major banks including Barclays, Nationwide, NatWest, Santander UK and Virgin Money UK.

Dave Ramsden, deputy governor of the Bank of England, said the exercise was a key part of the UK’s response to the global financial crisis and “shows how the UK has overcome the ‘too big to fail’ problem”.

He said: “Big UK banks need to look at the outstanding measures identified as part of the bank’s assessment and have their preparations ready, tested over time and confident that they will be used should the need arise. ”

The process is part of the UK’s effort to prevent similar problems that led to the banking crisis of 2007-2008, when the threat of a series of bank failures forced western governments to spend billions of pounds to keep lenders from collapsing and leave the world economy in free fall.

The crisis accelerated after Lehman Brothers went bankrupt in September 2008 after running out of money to pay its bills when banks stopped lending to each other. The panic that followed triggered the worst global recession since World War II.

The US was forced to find a buyer for brokerage firm Bear Stearns, while the UK government nationalized Northern Rock and spent £45bn and £20.3bn of taxpayers’ money to bail out the Royal Bank of Scotland and Lloyds respectively .

“In 2007-08 the UK didn’t have such a resolution regime and instead if some banks got into trouble this left two options: let banks fail and cause big disruptions or bail them out with taxpayers’ money,” Ramsden said.

However, he acknowledged that “no matter how much preparation is done, the execution is likely to be complex. Maintaining a credible and effective settlement regime that is appropriate and operational is an ongoing process.”