BOE warns banks to adopt tougher rules

The Bank of England has warned the UK’S banks they must adopt rules designed to make it easier for them to be wound up if they fail, or else ramp up further the amount of capital they hold.

Just over 10 years since the start of the financial crisis – leading to a £500bn rescue for the City and bailouts for RBS and Lloyds – Sir Jon Cunliffe, the Bank’s deputy governor, warned against complacency.

Next week the Bank will set out details of how it will deal with banks that fail, making it easier to protect insured depositors by placing them into a special form of insolvency or by being “bailed in” by shareholders and creditors.

Speaking in Brussels, Sir Jon said the emerging regime “is not costless” but argued against “voices calling for the reforms to be watered down or abandoned”.

He said: “In the UK, the going-concern regime is based on assurance of there being an effective way to resolve failing banks. Absent such assurance … we would require banks to hold appreciably more capital.”

Sir Jon warned the Bank would also impose stricter requirements on the UK arms of overseas lenders to give them “greater resistance locally” if strong international rules and checks are not established.

The warning of the potential need for further capitalisation at the banks comes despite efforts to strengthen balance sheets.

By the Bank’s own calculations, major UK lenders have sufficient resources to allow them to be “bailed in” and survive even if they suffered losses six times those incurred in 2008 and 2009.