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Details

  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 10/11/2013

Adding bail-in to the UK resolution regime 

HM Treasury has introduced a series of amendments (PDF 169KB) that will add the ‘bail-in tool’ to the UK's Special Resolution Regime.

This is important for banks because:

These amendments ‘front-run’, but are broadly consistent with, the EU's proposed Bank Recovery and Resolution Directive (BRRD). They may be implemented well before the EU's bail-in powers (which in the current draft of the BRRD will not become operative until 2018).


The scope of the bail-in powers will be extended to cover building societies, major investment firms and central clearing counterparties, as well as to banking group companies.


Although the amendments follow the BRRD in excluding certain liabilities from bail-in, and for liabilities that can be bailed-in the Bank of England (as resolution authority) is generally expected to follow the same creditor hierarchy as under insolvency, the Bank of England is given the discretion to follow a different route if it publishes reasons for doing so.

Implications

Early implementation and Bank of England discretion to choose the order in which eligible liabilities may be bailed-in could both increase the cost of funding for UK banks, as investors and uncovered and unsecured depositors factor in the potential application of bail-in.


Any disconnect in the availability of powers across jurisdictions could make it difficult to resolve cross-border groups efficiently and effectively.


The BRRD provisions to require banks to hold minimum amounts of bail-in-able liabilities are covered elsewhere in the Banking Reform Bill, under the minimum loss absorbency requirements for ring-fenced banks, domestic systemically important banks, and UK-headquartered global systemically important banks.

Further insights

To discuss the implications further please contact Giles Williams, Clive Briault or Andrew Davidson.

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