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Bank of England outlines framework to protect economy from bank failure

Staff Writer |
The Bank of England (BoE) outlined new rules on Monday to protect the economy and taxpayers from bank failure in a recurrence of the financial crisis.

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The BoE labels the handling of bank failure, the disposal of its assets and meeting its obligations as resolvability, and it intends the new plans - revealed in a paper assessing resolvability and a second paper outlining a public disclosure regime for banks - to strengthen the system.

This will be by identifying a clear path to dealing with bank failure. The BoE bundles the two papers together as a Resolvability Assessment Framework (RAF), which will be implemented by 2020.

The RAF and the resolution regime will allow bank services to continue after resolution so that authorities or new management can restructure the bank, or allow it to "fail in an orderly way," reducing risks to depositors, the financial system and public finances, according to the BoE.

In Britain, the 2008 financial crisis saw two major banks, Lloyds and RBS, bailed out by the British government to prevent their collapse and to protect the system from the dire consequences of that collapse.

This cost the government 20 billion pounds to buy shares in Lloyds and 45 billion pounds in RBS.

In addition, the government provided billions of pounds in liquidity for other large banks to draw upon.

The BoE has since then built a tighter regulatory regime, and Monday's package of plans is a significant part of that.

"The RAF ... is the final major piece in the UK's resolution regime for banks," said Jon Cunliffe, BoE deputy governor for financial stability.

"The framework places responsibility on banks to demonstrate to the bank and publicly their preparedness for resolution and that they have identified the risks to a successful resolution."

The RAF will apply to the largest British financial institutions, which have at least 50 billion pounds in retail deposits on an individual or consolidated basis.

The BoE said that, in the first instance, it would assess the resolvability of individual banks headquartered outside Britain

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