BoE highlights UK banks’ shortcomings on plans to fail ‘safely’
HSBC, Lloyds Banking Group and Standard Chartered have “shortcomings” in their plans to ensure they could fail without detriment to customers and taxpayers, the Bank of England said on Friday.
The regulator ordered them to fix issues including how they would fund themselves if they ran into trouble and how they would smoothly serve customers.
The BoE said five other big UK banks must make “enhancements” to their resolution plans, which they were ordered to create as part of 2019 measures to make sure the bailouts of the 2007-08 crisis would not be repeated. The UK offshoot of Spain’s Santander was the only one of the UK’s eight top banks that came through the BoE’s first assessment of lenders’ resolution plans without any recommendations.
The BoE stressed that while there were many areas for improvement, all of the banks could fail safely “remaining open and continuing to provide vital banking services to the economy”.
HSBC, the UK’s largest bank by assets, was ordered to improve its strategy for funding itself through a crisis, and to improve its plans for how it would be restructured during its demise.
In its statement, HSBC said it had been asked to take steps to improve the resolvability of its international infrastructure, which spans 64 countries and territories.
“The changes that would be required to this infrastructure to support certain restructuring actions, which may be needed in resolution, would be complex,” the bank said, adding that the work would be done over a “multiyear period”. HSBC shares were down 0.4 per cent in pre-market trading.
The BoE also identified issues with Lloyds’ plan to fund itself through resolution, including its capacity to take “timely and robust decisions” on its liquidity. In its statement, Lloyds said it was already making some enhancements that would address the BoE’s concerns and that it would continue to engage with regulators.
Standard Chartered and NatWest were also criticised for their plans to ensure they could operate smoothly through a collapse.
Standard Chartered, which the BoE said had shortcomings in how it values collateral, said it was improving its liquidity analysis tools, and would complete the work by March 2023.
NatWest’s issues included “some aspects of record-keeping for critical services and contracts, and on our Funding in Resolution (FiR) preparations”. “We continue to engage with the BoE on these points.”
Barclays said it had “identified some areas for further refinement, including continued optimisation of processes and use of automation where appropriate, which it will continue to progress”.
“Safely resolving a large bank will always be a complex challenge so it’s important that both we and the major banks continue to prioritise work on this issue,” Sir Dave Ramsden, deputy governor for markets and banking at the BoE said on Friday.