The <a href="https://www.thenationalnews.com/world/uk-news/2022/05/24/bank-of-england-warns-45-of-mortgages-vulnerable-to-climate-change-in-tough-stress-test/" target="_blank">Bank of England</a> has expressed satisfaction that lenders have taken steps to ensure they are no longer “too big to fail” in any future crisis. The BoE is aiming to stop banks from requiring taxpayers to bail them out, as happened in the 2008 <a href="https://www.thenationalnews.com/Business/UK/2022/03/28/uks-natwest-bank-returns-to-majority-private-control-14-years-after-financial-crash/" target="_blank">global financial crisis</a>. At that point it was considered that letting them collapse would have had a disastrous effect on the UK economy and could not be allowed to happen. The central bank’s long-awaited response to the self-assessments of eight lenders, including HSBC and Barclays, found that their internal systems should be able avert the kind of state intervention that was needed during the 2008 financial crisis even if lenders were to fail. The 2008 financial crisis resulted in taxpayer paying billions of pounds to support entities such as the Royal Bank of Scotland. Now, they can continue to provide vital services even if they are going through a crisis, with shareholders and investors in line to bear the costs rather than taxpayers, the banking regulator said on Friday. All eight of the high street banks it assessed would be able to fail without major knock-on effects, but it did find “shortcomings” in three of the banks’ plans. “Today’s publication shows that if a major UK bank failed today, it could do so safely: remaining open and continuing to provide vital banking services to the economy,” the central bank said on Friday. “Shareholders and investors, not taxpayers, will be first in line to bear the costs, overcoming the ‘too big to fail’ problem.” If proved true in an actual crisis, it could save the treasury billions of pounds. In the aftermath of the 2008 financial crash, the government was forced to use £137 billion ($170.61bn) of public money to prop up the banks, protecting shareholders and investors. “Even despite that support, the disruption to the financial system contributed to the UK and global recession that followed. We cannot forget these lessons,” the central bank said. It was this that sparked the need for the resolvability tests which the regulator will now be performing every two years. High street lenders will have to submit their plans to officials on what will happen in the event that they fail. In the first such publication, the central bank rated several different parts of the lenders’ plans. It found that there were no “deficiencies” or “substantive impediments” — the two worst assessments — in any of the plans. Officials did identify “shortcomings” — the middle out of five scores — in how HSBC, Lloyds and Standard Chartered approached the process of securing enough financial resources to be able to take the preferred path. It also found two further shortcomings in the plans of HSBC and Standard Chartered. All three banks said in separate statements on Friday that they were making enhancements to address the issues identified and were improving their resolution plans. There were six banks whose plans contained “areas for further enhancement”, the second best assessment that the BoE could give. These included two for Barclays, two for HSBC, one for Nationwide, two for NatWest, one for Standard Chartered, and three for Virgin Money. Only Santander UK’s plan escaped unscathed from the central bank's assessment. Dave Ramsden, the BoE's deputy governor for markets and banking, said: “The Resolvability Assessment Framework is a core part of the UK’s response to the global financial crisis, and demonstrates how the UK has overcome the problem of ‘too big to fail’. “The UK authorities have developed a resolution regime that successfully reduces risks to depositors and the financial system and better protects the UK’s public funds. “Safely resolving a large bank will always be a complex challenge, so it is important that both we and the major banks continue to prioritise work on this issue.” Publication of the review was delayed a year to free up lenders to deal with the Covid-19 pandemic. There were notes of caution about the central bank’s approach harking back to the 2008 crisis. “Generals always fight their next battle based on the experience of the last war,” said Claude Brown, a partner at law firm Reed Smith LLP in London. “It slightly troubles me that resolution regimes are largely based around the Lehman experience. They won’t know what the next black swan event is going to look like until it arrives.” Resolution planning often works on the flawed assumption that a bank will fail on Friday night and that the company and regulators can deal with the fallout while markets are closed, he said.