No bank too big to fail, and none too small to resolve − speech by Ruth Smith

Good evening, everybody. It’s a pleasure to have had the opportunity to listen to many of you over the course of today’s insightful presentations and discussions on banking resolution. Thank you to the European University Institute and Florence School of Banking and Finance for inviting me to speak today.    

Resolution is in many ways a team sport, and events like the Bank Resolution Academy are a real opportunity to learn from one another, understand the parts we each play, and look at what we can learn from a different viewpoint.    

Following on from today’s sessions on resolving medium-sized banks and the tools available to us in a resolution, I hope to provide a UK perspective on how the Bank of England prepares for resolving small to medium-sized firms.    

As you know, in the UK we have resolution regimes for banks and CCPs.  Today I am focusing on banks and will discuss what we mean in the UK when we talk about small to medium-sized firms and our approach to resolution planning for this large and varied group. I will also cover the lessons learned from the resolution of Silicon Valley Bank UK in 2023, and the new mechanisms we have added to our toolkit to improve optionality in a resolution while still seeking to lessen the burden on firms.    

Despite our recent experience of carrying out a resolution, and the improvements we have made as a result of that, there is still plenty of work to do when we consider resolution of smaller firms.   

The UK banking sector   

The UK has a diverse banking system, comprising some of the world’s large globally systemic banks right down to banks who have balance sheets in the tens of millions. This diversity requires flexibility in how our colleagues in the supervisory arm of the Bank of England, the PRA, apply their regulatory focus and equally needs us as the separate but collaborative Bank of England UK Resolution Authority, to tailor our approaches accordingly. Like any successful team, we each have distinct roles, but we are working towards the same objective of a safe and sound financial system.   

The UK remains a competitive and dynamic marketplace with multiple firms engaging in our pre-application process each year via the New Bank Start-up Unit, and the international presence remains strong, with firms of all sizes having UK subsidiaries and branches. Within the sector we see firms successfully entering, embedding their business, adapting to the demands of the marketplace, and in some cases exiting. This breadth of presence requires us, as the UK’s Resolution Authority, to be ready for those firm exits with a flexible and proportionate approach. Perhaps most importantly, we must be aligned to not only our teammates in the PRA, but where those subsidiaries and branches are part of a wider global group, to our resolution colleagues in overseas jurisdictions such as those here today.   

In practice then, what does this diversity of banking sector and tailoring our approach mean for UK resolution planning?     

We think about our banks in three broad groups,^{footnote [1]} the first of which generally comprises our largest banks, where we plan for bail-in.    

We then have what we describe as mid-tier banks, typically with balance sheets in the £25-40 billion range, where firms can be set either a transfer or a bail-in as the preferred resolution strategy. For the firms currently in this range, we generally set a preferred resolution strategy which involves transferring these firms in resolution to a private sector purchaser, or, in the absence of a purchaser, temporarily to a Bank of England owned bridge bank – pending a further sale.    

Following an update to our policy on how much loss absorbing capacity firms must hold, or “MREL policy”, last year,^{footnote [2]} unlike bail-in firms, transfer firms are not required to maintain MREL above minimum capital requirements. However, both bail-in and transfer firms are subject to the Resolvability Assessment Framework, or RAF. The RAF is our framework to assess UK financial firms’ resolvability and depending on the value of deposits held, some of these banks are also required to publicly disclose their own resolution self-assessment.    

In most cases, unless a firm with assets of less than £25 billion were viewed as posing a risk to financial stability, these smaller banks are then assumed to enter liquidation as a means of resolving their business if they are unable to either recover or complete a solvent wind-down. These are the firms we would use the Bank Insolvency Procedure or BIP for and do not hold additional MREL above minimum capital requirements or maintain additional capabilities to prepare for their failure.  BIP involves a rapid pay-out of depositors by the UK deposit guarantee scheme.^{footnote [3]}  

As always there is judgement in setting a preferred resolution strategy, it is not solely based on a firm’s size and as such a transfer strategy can nevertheless be set in circumstances where the Bank assesses that a firm below the £25 billion mark would pose an unacceptable risk if it were to enter modified insolvency.    

Since the 2007-2008 global financial crisis the focus for resolution has rightly been on the largest, most systemic banks, those described as ‘too big to fail’. For these firms, the necessary team may well be large and international, and involve each person playing their role to produce the desired outcome of a smooth resolution.  And, as we look forward at an ever more interconnected system, operationally speaking, for not only our largest firms but smaller banks too, and join this together with our experiences of a small bank failure, we find ourselves working with the same teammates, and asking the same questions about stability and confidence in the wider sector as well as the impact of that failure on the bank’s customers. With this experience still relatively fresh in our minds it is this I want to speak about in depth.   

Our approach to small firms    

For our smallest banks, those typically defined as having less than £25 billion total assets, the plan for the majority of them should they fail is theoretically straightforward. Where a firm experiences severe stress which it is unable to recover from, the simplest solution is a director led solvent wind-down, allowing the firm to exit the market in an orderly manner while remaining a going concern. This enables the firm to stay in control of its own exit, minimising disruption to customers, creditors, and the wider market.    

Not all solvent wind-downs require active involvement from the resolution authority.  The PRA leads the assessment of whether a firm can continue to meet its obligations and execute an orderly exit from the market.  Where there are concerns about the firm’s ability to complete the wind-down solvently, the Bank, as resolution authority, works closely with the PRA to understand what alternative actions may be required, such as a BIP, should the firm’s plans prove no longer credible.    

Across all our work, the close relationship we have with the PRA is one of the most important aspects of our resolution framework. They are a teammate that we cannot be successful without.   

In the situation where a firm enters solvent wind-down, both authorities must be satisfied throughout that the firm’s wind down plan is credible, that it has sufficient resources to meet its obligations to depositors and creditors, and that allowing the firm to continue with their solvent wind-down plan aligns with our respective statutory objectives.  For a smaller firm, where a solvent wind-down ceases to be credible, insolvency may be the only remaining option.    

A BIP is a modified insolvency process. While the BIP shares many of the features of a standard insolvency process, it is specifically modified for deposit takers such as banks and building societies.    

Unlike an ordinary corporate liquidation, a BIP has a key objective of protecting covered depositors, which is done in two possible ways: payout or transfer. A BIP payout involves the insolvency practitioner or bank liquidator winding up the bank, whilst the Financial Services Compensation Scheme, the FSCS, carries out a rapid payout of deposits to the eligible depositors.    

Authorities in the UK have worked to significantly improve the speed and effectiveness of this payout process, learning from our European counterparts, to help ensure that protected depositors can regain access to their funds as quickly as possible. This speed of payout is important in maintaining public confidence in the efficacy of the resolution regime, and in the stability of the wider financial system.   

The second option is a BIP transfer, which involves the transfer by an appointed insolvency practitioner of the firm’s covered deposit book to another firm, with the insolvency practitioner winding up the remainder of the firm. For many of our smaller firms, the BIP provides a credible and proportionate resolution strategy.    

 So far so good and, hopefully, relatively straightforward and with minimal disruption.    

The boundary between BIP and transfer    

However, the small bank sector in the UK is highly diverse, innovative, and faces heavy competition. These characteristics have resulted in many of these smaller firms developing specialised business models which serve key customer groups, sectors, or communities that may not be well served elsewhere in the market or not be able to quickly and easily transfer their banking services to an alternative provider.   

The BIP is ultimately a liquidation procedure, and while it ensures covered depositors benefit from FSCS protection and payout, it is not designed to maintain the continuity of banking services.    

As such, customers of the failed firm may lose access to their existing banking relationships, payments may be disrupted, and those with uncovered deposits may need to wait for distributions through the insolvency procedure. For some smaller firms’ business models this may be acceptable, but for other firms, particularly where customers rely on continued access to banking services to operate on a daily basis, the impact can be significant and potentially outside the risk appetite of the collective authorities.    

This means that the picture in the UK is nuanced, requiring our assessments of whether a BIP would meet our statutory special resolution objectives^{footnote [4]} to consider not only the size of a balance sheet, but also the nature of the customers it serves and the services it provides. As the Resolution Authority we need both a clear game plan and the ability to adapt it in real time.    

Lessons learned from SVB UK    

For the Bank, our experience with Silicon Valley Bank UK in March 2023 provides a powerful illustration of why flexibility in resolution planning is so important.    

At the time, SVB UK was a relatively small institution, with a balance sheet of around £12 billion and a preferred resolution strategy of BIP. Following the failure of its US parent and intervention by the FDIC, the Bank announced on Friday 10 March that, in the absence of further information, it intended to place SVB UK into insolvency.    

Based on what was known at that point, insolvency appeared to be the option that best met the public interest and the resolution objectives.   

As the situation developed over the weekend, however, it became clear that many customers relied on SVB UK not just for deposits, but for critical banking and payment services. At the same time, we needed to be cognisant of public confidence in the system against the backdrop of several other small bank failures in the US.   

We therefore kept multiple options open over the weekend, including insolvency. HSBC emerged as the credible bidder able to complete a transaction before markets opened on Monday while ensuring continuity of critical services, and with close liaison with FDIC throughout, and consultation with the PRA, FCA and HM Treasury, we concluded that a private sector transfer would better meet the special resolution objectives than a BIP.   

Unlike a BIP, the transfer provided protection for all depositors, not just those within the covered limits, ensured continuity of banking services, and most importantly protected and enhanced public confidence in the stability of the wider UK financial system in a way that did not incur costs on public funds.     

For me, this evidences that a preferred resolution strategy provides a vital starting point in contingency planning, but authorities need the flexibility, operational readiness and judgement to adapt quickly when executing a resolution as circumstances change in real-time. In the case of SVB UK, that flexibility was critical to achieving a better outcome for customers, for financial stability, and for the public interest.   

With this in mind, I want to speak to three key takeaways from this, our most recent experience of a bank resolution - transparency, optionality and international cooperation.     

Transparency   

First, SVB UK underlined the importance of a transparent resolution regime and communicating clearly and openly with markets, and authorities. The UK’s resolution framework relies not only on the Bank’s powers as resolution authority, but also on firms, investors, and other market participants understanding how these powers are used in practice, so that they can react accordingly.    

During the resolution weekend for SVB UK, both regulatory and finance ministry authorities worked together to consider multiple strategies in parallel. While this demonstrated the flexibility of the UK's framework, it also reinforced the value of ensuring there was common understanding about how different resolution options would be executed in a live event - between authorities, potential buyers, and the firm itself. Success depended on everyone understanding their role and how the wider team would operate under pressure.   

To bolster this shared understanding, in April we published the Bank’s operational guide to transfer resolution. The guide explains how the Bank would use its transfer powers in practice, whether the transfer involves selling the failed firm to a private sector purchaser, or placing it into a temporary bridge bank owned by the Bank of England.    

It aims to provide greater transparency around the key stages of a transfer, including preparatory work for both us and the firm, buyer engagement, transaction execution, and the information needed to support an accelerated sale process.    

By setting out these operational arrangements publicly and in advance of a future stress, the guide explains that transfer is not simply a theoretical power, but a credible and operationally deliverable resolution strategy. It helps firms better understand what may be expected of them, including the importance of maintaining the information and capabilities needed to support a rapid transfer if required.  It provides transparency to all potential stakeholders within a transfer, including prospective buyers, on how the bidding process would run for a transfer, improving the quality of bids, the competitiveness of an auction, and the smoothness of running the process overall.  

We applied the same learnings on transparency and communications to the Bank’s updated operational guide to bail-in resolution.  As firms grow, they face different resolution expectations. The guide provides greater clarity on how the Bank would execute a bail-in, giving firms, investors and other stakeholders a clearer understanding of the practical steps involved. In doing so, it supports preparedness, reduces uncertainty and reinforces the credibility of the UK's resolution framework across the full spectrum of firms.   

Optionality   

Moving on then to consider the optionality that our resolution framework gives us when planning for a firm failure. While the existing regime gave us an effective and flexible set of options that we were able to use to resolve SVB UK smoothly over a weekend, since 2023 we have continued to work very closely with our colleagues in HMT, our finance ministry, to introduce a new choice in our toolkit in the form of the recapitalisation payment mechanism.    

Introduced via the Bank Resolution (Recapitalisation) Act 2025, this tool is intended to cover associated losses or recapitalisation needs in a transfer via a new industry-funded safety net.    

Simply put, assuming the failing firm meets the public interest test, the recapitalisation mechanism allows us to cover certain costs associated with transferring a firm in resolution up front, be that to a private purchaser or a bridge bank, and then recover these from the industry via the financial services compensation scheme levy ex-post. This minimises the risk to public funds while providing options to use stabilisation powers to resolve a smaller firm when in the public interest.  We were fortunate that in the case of SVB UK the write-down of the regulatory capital was sufficient to enable us to transfer the firm to an interested and credible buyer – but this will not always be the case.  

Use of the mechanism may include recapitalisation of a firm during transfer due to a capital shortfall or potentially providing funds to the purchaser upfront and possibly in the form of guarantees to address any material concerns raised during the bidding process.    

For example, we recognise that the circumstances around a failing firm are often uncertain and extremely fast moving, resulting in limited time for due diligence to be conducted by interested buyers and introducing significant barriers which must be navigated to ensure a successful transfer.    

The new mechanism also gives us the space to be more proportionate in terms of what we require from small and medium-sized firms prior to a resolution. As I have noted, transfer firms are no longer required to hold MREL, in part due to the industry-funded safety net that this new mechanism provides.   

This flexibility represents a big step forward in strengthening our resolution toolkit. However, as always, we need to balance the needs of the failing firm with those of the wider financial system – recognising that any funds used to support the transfer are ultimately repaid by the wider industry.    

Importantly, it is not a replacement for BIP – an insolvency procedure is still a viable option for many firms and dependent on the scenario, may still be the right approach to take when considering our resolution objectives. While the use of the recapitalisation payment mechanism will always be situation specific, in all cases, the Bank will seek to use any funds in the most efficient and effective way possible, and the Act will not be used inappropriately to protect creditors from losses.    

This addition to the Bank’s resolution toolkit recognises that the UK runs a non-zero failure regime, and therefore it is important for firms to be allowed to grow but also be allowed to fail and exit the market smoothly – regardless of their size. It places a portion of that accountability back onto industry, not taxpayers, and ensures the Bank as Resolution authority has more options available to it and is ready for multiple failure scenarios without excessive burden on our smaller firms.   

International cooperation and coordination   

Third and finally, SVB UK underlined the importance of close coordination between authorities, particularly where a failing firm forms part of a wider international banking group.    

Effective resolution of cross-border firms requires more than financial resources and legal powers. It also depends on strong cooperation between home and host authorities, shared understanding of the firm's operational dependencies, and a common objective of maintaining critical services for customers. Like any team, it is helpful to train together before a match, and cross-jurisdictional exercises that allow us to practice and understand how we best work together are an important part of preparing for firm failure before the moment of stress arrives.    

While SVB UK involved close coordination between the UK and US authorities, the same principles would apply to firms operating across other jurisdictions.    

As banking groups become international, maintaining these relationships and coordination channels is an essential part of ensuring that resolution strategies remain credible and operationally deliverable.    

Conclusion   

What does the evolution of our framework mean in reality then? For me, it demonstrates that within the UK resolution regime, we have a robust toolkit that gives us confidence in having options to resolve small, medium and large firms.  

But looking ahead, I can still see areas of the banking sector where we could do more, particularly when it comes to small and medium-sized firms, to better prepare ourselves as authorities and prepare firms, in “peacetime”. I have spoken about how flexible options allow us to execute a resolution in more than one way for any given firm, in order to prioritise better outcomes for depositors while still protecting the public purse and wider financial stability.  

We often envisage using these options when presented with new information that challenges our original game plan during a resolution. However, I consider that we can do more to ensure we are always ready, by working with supervisors and firms to use their existing data and regulatory reporting to identify where they may be on the boundary of a BIP or transfer strategy in advance.   

As trailed in our update to the MREL policy last year, we are reviewing the indicative threshold of 40,000 to 80,000 transactional accounts as an intervention point for when a transfer strategy may need to be set for a firm under £25 billion in total assets. In part, this review is taking into account that the recapitalisation payment mechanism gives us more optionality for firms that do not hold MREL, and that consumer banking behaviour has changed since the threshold’s original implementation, making it less in step with the judgements we have to make when setting preferred resolution strategies.   

However, by removing the burden of MREL for such firms, we still need to ensure that we can execute a transfer effectively.  As part of this review, we are working with the PRA to ensure our resolution planning and reporting policies reflect these recent developments. This includes considering the information we require BIP firms to report on regularly. Are we asking the right questions? Is there existing data that firms already have through recovery and solvent exit planning that would better support our shared readiness for resolution planning as a BIP or in preparation for a transfer strategy in the future?  

With a more established resolution regime we must ask ourselves these kinds of questions to ensure we are continually improving and evolving our approach to firm resolution across the sector. I expect that we will publish our updated approach in early 2027 and look forward to hearing industry views in due course.   

A firm’s resolvability journey is never done, and as such our job as resolution authority isn’t either. No single authority can deliver resolution alone; it remains, at its core, a team effort and we will all need to remain live to an evolving sector to ensure our capabilities and policies are in step with the firms we regulate. The world rarely stays still and advances in technology, how firms operate and where the next risk may arise from is a horizon that we must keep at the front of our mind when considering barriers to an orderly resolution. Firms are a part of our team in a resolution, and I hope by continuing to work closely with one another, we can maintain readiness through a proportionate and effective resolution regime.   

I would like to thank Mala Gopalakrishnan, Kat Hind and Amanda Tennant for their help in preparing these remarks. I would also like to thank Geoff Davies, Charlotte Gerken and Dave Ramsden for their helpful comments.