UK banks no longer ‘too big to fail’ but sector still has room for improvement

All of the UK’s top banks would survive a major financial shock, but some have shortcomings in ensuring they fund themselves through a crisis, the Bank of England said today.

Britain’s eight biggest high street lenders would be able to fail safely without a repeat of bailouts seen during the financial crisis in 2008, according to conclusions drawn by the Bank in its resolvability assessment.

Lenders would still be able to deliver on customers’ demands and “provide vital banking services to the economy” if they collapsed, the Bank said.

However, just Santander came away without any recommendations from the Bank’s analysts.

Asia-focused HSBC and Standard Chartered and Britain’s biggest mortgage lender Lloyds had “shortcomings” in their internal controls to limit the damage inflicted on stakeholders if they failed, Threadneedle Street said.

HSBC was slammed for not drawing up effective plans to fund itself through a crisis, while Lloyds was criticised for not demonstrating how it would take timely decisions on its liquidity position.

Despite the criticism, regulations put in place in the aftermath of the financial crisis that ensure the UK’s largest banks are sufficiently capitalised will limit losses to the general public should the sector collapse again.

“Shareholders and investors, not taxpayers, would be first in line to bear banks’ losses and the costs of recapitalisation,” the Bank said.

The government injected billions of pounds into the banking sector in 2008 to prevent a complete collapse of Britain’s financial system that would have intensified the economic shockwaves caused by the financial crisis.

The Bank’s assessment illustrates that the UK’s largest lenders are no longer “too big to fail”.

A spokesperson for Standard Chartered said: “Our resolution planning aims to meet the statutory objectives of resolution in the UK and the objectives of our overseas authorities. We remain committed to working with the BoE and our overseas authorities to continuously improve our preparedness for resolution.”

HSBC said: “In assessing our preparations for resolution, we have identified areas that require further improvement. In particular, HSBC recognises that it needs to take steps to enhance its capabilities for the execution of deep restructuring actions that could potentially be required in certain resolution scenarios.”