making banks resolvable : the key to making resolution work speech given by andrew gracie, executive director, resolution directorate risk minds conference, amsterdam 4 december 2017 all speeches are available online at www. bankofengland. co. uk / speeches introduction resolution has come a long way since g20 leaders put together the post - crisis financial reform agenda in summits in london and pittsburgh in 2009. in some ways, it represented the most notable gap, and significant change in the pre - crisis regulatory architecture. nearly ten years on, huge progress has been made in establishing effective resolution arrangements and the commitment to ending too - big - to - fail ( tbtf ) is undimmed. the immediate priority in this effort was to put in place the necessary legal frameworks. agreement in 2011 of financial stability board ( fsb ) key attributes for effective resolution regimes provided the international standards to ensure a consistent approach to the design of resolution regimes across g20 jurisdictions. the uk now has in place a comprehensive bank resolution regime that is compliant with international standards and will remain so after brexit. similarly, for all advanced economies, there are now resolution regimes that are largely compliant with the key attributes in all the jurisdictions that are home to global systemically important banks ( g - sibs ). but the key attributes were about effective resolution regimes rather than resolvable firms – they defined a tool - kit but not how to use it ; and a process for resolution planning for g - sibs but not what would make a firm resolvable. powers without resolvability leaves resolution authorities vulnerable. indeed, the moral for me of recent failures and near - failures is not that resolution is misguided and will not work, but that it will not work if firms are not regulated and supervised in a way that makes them resolvable. this is the story of the last five years. we have focussed on organising firms in such a way that authorities ’ resolution powers can be used without significant adverse consequences for the rest of the financial system or the wider economy. this moves us progressively to where we want to be against risk appetite. and though we are not yet where we finally need to be, what has been done has already yielded significant benefits. for example rating agencies have largely removed government support uplifts to bank ’ credit ratings. where uk firms have come under stress, our resolution arrangements have been one factor that has helped secure recovery. today i want to review where we are on the journey

##91df1dde7a131ea3186f66f304380553306. all speeches are available online at www. bankofengland. co. uk / speeches mrel instruments at the relevant international central securities depository ( icsds ) and central securities depository ( csds ). we will at the same time issue onto the bondholders accounts at the icsds a tradeable certificate of entitlement secured by the shares in issue. there will be as many classes of certificate as there are classes of claim. once the valuation is complete and we have announced the terms of exchange, holders will present the certificates in exchange for whatever equity they are entitled to as compensation. the resulting shareholders will then vote in a new board and the firm will return to private sector control. issuing certificates of entitlement in this way will provide a mechanism for debtholders that do not want to, or due to their mandates, are not able to hold equity to trade out of their positions. and this will have an ancillary benefit for us of providing some sort of shadow market valuation of the firm. but what about other liability holders – depositors, market counterparties, trade creditors etc. – during this interval? our aim with the announcement of the resolution is to send a strong signal to them that their claims are safe and that the operating companies they are transacting with will continue to perform. full conversion of internal mrel in the key operating companies around the group and a strong sense that the firm will have access to liquidity will contribute to that. to this end, the bank has established new arrangements to clarify, first, that a firm in resolution would continue to have access to the ordinary central bank facilities in the sterling monetary framework, subject to meeting the necessary eligibility criteria. and second, those arrangements will be supplemented where necessary by a flexible resolution liquidity framework, designed to provide liquidity, in sterling or foreign currency, in the necessary scale, for a sufficient period of time, and secured against a wide range of collateral to allow the firm to make the transition to market - based funding. sending a strong message in this way at the outset of the resolution will maximise the chances of stabilising the firm and if liability holders know their claims will be refinanced, reduce the risk of a further run. this need for clarity is understood at international level. fsb has just published a consultation paper on bail - in execution addressing