BoE says UK banks no longer too big to fail

Britain’s major banks are no longer too big to fail and could still provide vital services in a crisis without a taxpayer bailout, the Bank of England said, although it said three lenders had fallen short of meeting requirements.

The BoE’s tests are the first assessment since the global financial crash of 2008 of how failing lenders could be taken apart without being propped up by the government.

“Today’s publication shows that if a major UK bank failed today it could do so safely: remaining open and continuing to provide vital banking services to the economy,” it said on Friday.

“Shareholders and investors, not taxpayers, will be first in line to bear the costs, overcoming the ‘too big to fail’ problem.”

Banks were responsible for the 2008 global financial crash, although remarkably few executives went to jail as a result. In the UK, the taxpayer stumped up £137bn as the sector socialised its losses to protect shareholders and investors.

“Even despite that support, the disruption to the financial system contributed to the UK and global recession that followed. We cannot forget these lessons,” the BoE said.

In response, it established “resolvability” tests which the BoE will performing every two years. High street lenders will have to submit plans on what will happen in the event that they fail.

In the assessment released on Friday, the BoE found that there were no “deficiencies” or “substantive impediments” – the two worst assessments – in any of the plans.

Officials found shortcomings in how HSBC, Lloyds and Standard Chartered planned to raise enough financial resources to be able to take the preferred path. It also found two further shortcomings in the plans of HSBC and Standard Chartered.

There were six banks whose plans contained “areas for further enhancement” - the second-highest assessment measure.

These included two for Barclays, two for HSBC, one for Nationwide, two for Natwest, one for Standard Chartered, and three for Virgin Money.

Only Santander UK’s plan passed all requirements.