New guidance sets out transfer and bail-in steps, including a new option for creditors holding US-issued instruments
The Bank of England has published updated operational guidance on how it would manage the failure of a UK bank or building society, setting out clearer processes for both transfer and bail-in resolutions and adding a new approach intended to reduce legal friction where creditors hold US-issued securities.
The resolution regime is designed to allow a firm to fail without interrupting critical functions such as payments and access to deposits, and without calling on public money. The UK central bank said the updated material is intended to improve transparency and ensure firms plan in advance for stress, supporting financial stability and confidence in the banking system.
One guide addresses transfer resolution, where all or part of a failing firm could be moved to a private sector buyer or into a temporary bridge bank owned by the Bank. The guide also describes circumstances in which the Bank might require a recapitalisation payment as part of a transfer. The updated text expands on how the Bank would use its powers to execute sales in a failure scenario.
For bail-in, where losses are imposed on shareholders and eligible creditors to recapitalise the firm, the Bank has added an alternative tool. Instead of immediately wiping out certain bail-in security holders, affected creditors could receive non-transferable contingent beneficial interests. These would be created at the point the firm enters resolution and remain in place until the allocation of shares is finalised, representing a potential right either to shares or to proceeds if those shares are sold once resolution is complete.
The Bank of England sought and received a “no-action” letter from the Securities and Exchange Commission (SEC), providing assurance that the SEC would not recommend enforcement action if a UK bank exchanged US bail-in securities for the non-transferable interests, which could later be converted into shares. The SEC chair also said he planned to introduce a rule to exempt banks carrying out such exchanges in resolution from US registration requirements that would otherwise apply to sales of securities.
“Clarity and certainty are important to both the US and global markets because these bail-in processes are inherently an emergency and can occur over a single weekend,” said Paul Atkins, chair at the US Securities and Exchange Commission. “US investors may own securities in the foreign bank subject to the bail-in.”
While US banks do not issue the same style of bail-in instruments as many European firms, European banks have sold these securities to US investors. That has raised questions about how cross-border conversion would be treated during a fast-moving resolution.
The Bank of England said its updates reflect lessons drawn from the 2023 failures of Silicon Valley Bank and Credit Suisse, alongside ongoing international work to improve the credibility and effectiveness of bail-in. The Credit Suisse case highlighted concerns that legal uncertainty over instruments issued under US rules could constrain resolution options.
“By continuing to establish a shared understanding of how plans would be implemented in stress, we strengthen our preparedness and responsiveness to act if needed,” said Ruth Smith, executive director of the resolution directorate at the Bank of England.
Post-financial crisis rules require larger banks to maintain an additional layer of loss-absorbing capacity — the minimum requirement for own funds and eligible liabilities (MREL) — that can be written down or converted to equity to avoid taxpayer support. The framework has remained under scrutiny after the Bank arranged the weekend sale of Silicon Valley Bank UK to HSBC for £1 in 2023.
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