Recovery and resolution—failing financial institutions
Recovery and resolution—failing financial institutions

The following Financial Services guidance note provides comprehensive and up to date legal information covering:

  • Recovery and resolution—failing financial institutions
  • Banking Act 2009
  • UK Independent Commission on Banking and Government Response
  • Bank Recovery and Resolution Directive
  • The BoE and the FDIC
  • Slowly pulling together

Banking Act 2009

The first outline proposals designed for the recovery and resolution of a failing financial institution were produced in the immediate aftermath of the financial crisis of 2007 and 2008. During the financial crisis, it became apparent that the UK did not have a resolution regime sufficient for the orderly wind down of a failing financial institution. The only way of managing the insolvencies of UK financial institutions was through the use of standard insolvency procedures, which risked both systemic disruption (by freezing financial markets, disrupting key financial relationships and interrupting critical services) and also destroying value in the financial institution in insolvency.

Given the catastrophic effect of allowing certain financial institutions to fail, the Government was forced to use public money to bail out a number of institutions. Wary of the moral hazard this created, the Government enacted the Banking Act 2009 (BA 2009) to give supervisory authorities the resolution powers they needed. BA 2009 created a Special Resolution Regime in three parts:

  1. Stabilisation powers to transfer a failing financial institution to:

    1. a private sector purchaser

    2. a bridge bank, or

    3. temporary public sector ownership

  2. the bank insolvency procedure (BIP), and

  3. the bank administration procedure (BAP)

The stabilisation powers in part 1 were designed to address the acute problems in a failing institution, to allow the authorities to subsequently