UK is developing a new plan to address the issue of small bank failures, particularly in the wake of the collapse of SVB

On Thursday, the UK’s finance ministry announced its intention to implement enhanced procedures for the more effective management of small bank failures. This initiative follows the notable collapse of Silicon Valley Bank (SVB), based in the United States, last year.
The proposed measures, presented for consultation less than a year after SVB’s sudden demise, aim to shift some of the financial burden associated with bank failures from taxpayers to the industry itself, according to the UK’s Treasury. The collapse of SVB prompted HSBC to acquire the UK arm for a nominal fee of one pound in March of the previous year.
Under these proposals, the government envisions transferring a struggling small bank to a “Bridge Bank” or a willing buyer, rather than resorting to insolvency. However, the Treasury acknowledges potential risks to taxpayers, particularly if recapitalization becomes necessary for the struggling bank. To mitigate this, the proposals expand the options for securing capital for a resolved financial institution.
The new process would empower the Bank of England (BoE) to utilize funds contributed by the banking sector to cover the expenses associated with resolution, including those related to recapitalization and the operation of the failed bank, according to the Treasury.
The BoE expressed its approval of the proposals in a separate statement. The resolution regime for banking institutions in Britain, established in 2009 after the global financial crisis, aims to prevent public funds from being jeopardized in resolving a failing bank.
The absence of such a regime during the 2008 financial crisis compelled the government to intervene and inject £137 billion ($174 billion) of public funds to stabilize the banking sector. The current proposals are designed to fortify the regulatory system in the UK, ensuring ongoing safeguards for financial stability, customers, and public funds in the event of bank failures.