Big British banks must publish 'living wills' in 2021

LONDON (Reuters) - Britain's major banks, such as Barclays BARC.L and HSBC HSBA.L, will have to tell investors in 2021 if they can be closed down without creating havoc in financial markets, the Bank of England said on Tuesday.

FILE PHOTO: A man walks past the Bank of England in the City of London, Britain, February 7, 2019. REUTERS/Hannah McKay//File Photo

A decade after Britain had to rescue Royal Bank of Scotland RBS.L and Lloyds LLOY.L during the 2007-09 financial crisis, large British banks will have to present "living wills" which show they can be resolved in an orderly way so that customer deposits and some core services are unaffected.

“Increased transparency about the resolution regime is in the public’s interest and also incentivises firms to make further progress on their resolvability,” BoE Deputy Governor Jon Cunliffe said in a statement.

The BoE has set a 2022 target for major banks to be resolvable, including requirements for them to hold special debt that can replenish capital buffers.

Under the new framework the BoE published on Tuesday, banks with retail deposits of more than 50 billion pounds ($61 billion) must publicly disclose summaries on their own resolvability assessments or “living wills” by June 2021.

At the same time, the BoE will publish this assessment for the major UK banks, setting out any factors that could prevent orderly resolvability by the 2022 target date.

The Bank intends to publish the assessments every two years to show that the banks are no longer “too big to fail”, keeping taxpayers off the hook in the next crisis.

Although not a formal pass or fail, markets could pile pressure on banks required to take further action to meet the resolvability target.

Banks must also nominate a senior manager responsible for compliance with the new framework or face a ban or fine.

Simon Hills, director of prudential policy at UK Finance, which represents banks, said in response to the BoE requirements that the banking system had been fundamentally reformed to ensure that taxpayers never had to bail out a bank again.

The United States already requires banks to say if they are resolvable. But in April, the Federal Reserve proposed a more relaxed reporting schedule that would permit banks to submit full plans less frequently.

The euro zone has said it is “neutral” for now on asking banks to publish living wills.

“Perhaps Brexit means that the UK is anxious to be on the front foot in demonstrating the robustness of its financial system,” said Ash Saluja, head of financial services at law firm CMS.

British banks already hold multiples of the amount of capital than before the crisis, along with special loss-absorbing debt, meaning they are less likely to reach a situation where they have to be closed down.

Reporting by Huw Jones, editing by Andy Bruce. Editing by Jane Merriman