BoE to make banks publish death plans to avoid repeat of Lehman contagion

Deutsche Bank - External

The Bank of England (BoE) will force banks to publish plans showing how they would wind up operations if they go bust, a top official announced today, in the next step in regulators’ efforts to clamp down on “too big to fail” lenders.

The UK’s systemically important banks, such as Royal Bank of Scotland, Lloyds, and Barclays, will have to submit a “self-assessment of their resolvability” to regulators, with the BoE intending to publish “elements” of the plans.

BoE deputy governor Sir Jon Cunliffe announced the plans today in a speech in London, saying they are “the next step in the natural evolution of the resolution regime in the UK”.

Read more: A decade on from the crunch, we still need to confront 'too big to fail'

The BoE will launch a consultation on the plans at the end of this year on the framework banks will need to follow for the reporting.

The first round of bank self-assessments will start in 2020 to give lenders time to adjust to a new framework as well as Brexit and bank ring-fencing, Cunliffe said.

Regulators around the world want to ensure that there can be no repeat of the 2008 financial crisis, when the collapse of giant investment bank Lehman Brothers brought the Western financial system to its knees.

Banks have been forced to dramatically increase the amount of capital they hold, and to make changes to how they are structured to avoid a repeat of costly government bailouts.

Read more: Too big to fail banks are a global affair, says Bank of England's Cunliffe

Cunliffe said: “The public needs to have confidence that we have learned the lessons of the crisis: that we have acted to ensure that we have an alternative to the previous crisis where we had privatisation of bank profits in good times and the socialisation of bank losses when things go wrong.”

He also defended the moves the BoE has made to centralise the clearing of derivatives, which regulators believe have made the financial system safer. However, the Bank has faced criticism over measures which reduce competition.

“Returning to a derivatives universe that linked the international financial system together through a far more complex network of bilateral exposures, would in my view be a retrograde step,” he said.

Read more: Moving euro clearing away from London threatens global financial services

Full story: BoE to make banks publish death plans to avoid repeat of Lehman contagion: City A.M.

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