HM Treasury has issued a consultation on proposals for enhancing the Special Resolution Regime (SRR). Specifically, the consultation seeks views on plans to introduce a new mechanism to facilitate the use of certain existing stabilisation powers to manage the failure of small banks.
The primary objective of the proposed enhancements are to limit the costs borne by the taxpayer in the event that a small bank fails and needs to be transferred to either a bridge bank (owned by the Bank of England (BoE)) or a commercial buyer (as in March 2023 when the UK operations of Silicon Valley Bank were sold to HSBC). Such costs would typically include:
- the costs of recapitalising the failed bank;
- the operating costs of a bridge bank, and
- HM Treasury and BoE costs in relation to the resolution, including legal and other professional expenses, costs of valuation and other associated costs.
In order to meet these costs the government proposes to expand both the statutory functions and the levy-raising powers of the Financial Services Compensation Scheme, to allow it to provide funding and levy for this new purpose.
The consultation will close at 5pm on 7 March 2024.