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By David Robinson
LONDON (MNI) - The Bank of England will consult at the end of this year on
a framework for assessing the progress major banks are making on resolution in
the event of their own financial failure, BOE Deputy Governor Financial
Stability Jon Cunliffe said.
Cunliffe said that one of the lessons of the Lehman Brothers collapse was
that not only was a system needed to cope with financial failure, but that
financial institutions, including central counterparties (CCPs,) needed plans
that were open to external evaluation for how they could handle their own demise
in an orderly way.
"The Lehman Brothers episode .. exposed brutally that insolvency is not an
option for large cross-border banks that perform critical economic functions.
One of the main objectives of the post crisis reforms has been to put in place
bank resolution regimes that enable the authorities to stabilize a failing bank
by bailing in its debt holders to restore solvency and regulatory capital,"
The BOE has been working on a bank resolution framework in case of failure
since back in 2014 but what needs to happen next is that the banks themselves
set out plausible resolution plans.
"The next phase of work will focus on ensuring that major banks have and
are able to demonstrate that they have the systems, documentation, assurance and
controls necessary to support their resolvability. We intend to consult at the
end of this year on the detail of this reporting and assurance framework. We
envisage that it will require major UK banks to conduct a self-assessment of
their resolvability - measured against the policies and standards that have been
established nationally and internationally," Cunliffe said at the FIA IDX
He also said that while the failure of a CCP was a very low probability
event one of the lessons of the global financial crisis was that plans needed to
be made for such tail risks. CCPs, like the major banks, need to set out plans
"Public reporting and assessment of resolvability should act to strengthen
further confidence of other jurisdictions in the resolution plans of banks that
operate in their jurisdictions. Confidence that an effective resolution of a
clearing member can be effected will support a CCP and its supervisor 'staying'
the default of that member, in line with the international guidelines," Cunliffe
The speech contained no reference to monetary policy or the current
In the question and answer session Cunliffe was asked about the threat of
He said that the BOE Financial Policy Committee (FPC) back in 2013 made
assessing protecting critical infrastructure from cyber attack a priority but
that "this is never ending, this will be the challenge for years to come"
He added that the FPC would be saying more on this in its next report later
"We are working on it, we will always be working on it because the threat
is never ending," Cunliffe said.
--MNI London Bureau; tel: +44 203-586-2223; email: firstname.lastname@example.org