Banks come up short over failure plans

HSBC, Lloyds Bank and Standard Chartered have been ordered to fix ‘shortcomings’ in their plans to avoid harming customers and taxpayers in the event of a failure.

Several more of the UK’s biggest banks must make ‘enhancements’ to their disaster preparation plans, the Bank of England said.

Britain’s major lenders were ordered to create ‘resolution plans’ in the aftermath of the 2008 financial crisis.

These were designed to ensure that if banks were due to fail, they could do so in an orderly fashion – without having to call on the taxpayer to provide a costly bailout.

Regulators are largely happy with these plans and in their first public review of the socalled resolution preparations, the Bank of England said any major UK lender could fail ‘safely, remaining open and continuing to provide banking services to the economy’.

But Santander – owned by Spain’s Banco Santander – was the only one of the UK’s top eight lenders to come out of the assessment with a clean bill of health.

Dave Ramsden, a deputy governor at the Bank of England, said: ‘Safely resolving a large bank will always be a complex challenge so it’s important that both we and the major banks continue to prioritise work on this issue.’

The 2008 financial crisis exposed a number of weaknesses in the UK banking system. The Government spent £137bn of taxpayer money on propping up the banks.

The Bank of England and the Treasury hope that stricter scrutiny of lenders, combined with regulations forcing them to hold larger capital buffers, will prevent this from happening again.

If a lender were to fail now, ‘shareholders and investors – not taxpayers – would be first in line to bear banks’ losses and the costs of recapitalisation’, the Bank said yesterday. Even so, HSBC was told to improve measures relating to how it would manage its international infrastructure in the event of a crisis.

It said the changes this would take would be ‘complex’, and that it would do the work over a ‘multi-year period’.

Lloyds Banking Group’s ability to take ‘timely and robust decisions’ on its liquidity was called into question, and the bank said it was already making improvements in this area.

Lloyds was one of the banks to receive a £20.3bn taxpayer bailout in 2008.

NatWest – which is still partowned by the Treasury following its own £45bn bailout – identified improvements which could be made in record-keeping and preparations for funding if it fell into resolution.

Standard Chartered was criticised for shortcomings in how it values collateral, or the assets which back up loans. It said it was improving its analysis tools.