andrew bailey : the uk bank resolution regime speech by mr andrew bailey, executive director for banking services and chief cashier of the bank of england, at the institute of chartered accountants in england and wales ( icaew ) financial services faculty breakfast, london, 26 november 2009. i am grateful to peter brierley, victoria cleland, iain de weymarn, geoff davies, tony foster, andrew hauser, orla may and paul tucker for their comments and assistance. * * * the uk bank resolution regime thank you for inviting me to speak this morning. one of the characteristics of bank resolutions, to which i will return later, is that they have to be done quickly to a fixed deadline and involve working through the night. they also require extensive involvement by accountants and lawyers, so, i have had some experience with spending nights and early mornings with accountants. the only, but important difference, is that i don ’ t get to choose when to spend my early mornings on resolutions, whereas you did choose to listen to me early this morning, for which i am very grateful. some history the 2009 banking act, passed in february, created the new bank resolution regime in the uk. in its first nine months it has been used once, at the end of march for the dunfermline building society. there is a long history of involvement by the bank of england in dealing with the problems of banks in the uk in order to underpin the stability of the financial system, much longer than the history of banking supervision. the history of the bank in the nineteenth century features quite a few such interventions. more recently, although none came amid conditions comparable to those which occurred last autumn, the bank was extensively involved in resolving problems in the secondary banking crisis of the 1970s, in johnson matthey bankers in the 1980s, and then in the early 90s with a number of smaller banks. my own first involvement with resolving banks came at that time, with the resolution of national mortgage bank. we now face a much bigger challenge in terms of building a more robust financial system. there are three parts to this task : regulation, structure and resolution. today, i am going to talk about the last of these. in the past, our resolution toolkit was limited. we could use the bank of england ’ s own financial resources, as we did with johnson matthey bankers and national mortgage bank. or, we could determine that it was not necessary to provide financial support on grounds of a threat to

positions within a 60 - day period after being notified by the authorities to do so. the rule was only introduced earlier this year but it will be worth considering a similar approach in the uk. finally, there is a large missing piece to what i have said about the resolution regime, namely how it would deal with banks that operate with branches or subsidiaries in other countries, and likewise how foreign banks operating in the uk would be sorted out. there is now a great deal of attention on this issue, in the g20, in the eu and via the fsb working group on cross - border crisis management chaired by paul tucker, and rightly so. i think it is fair to say that the regimes in the us, canada, japan and the uk come closest at present to meeting a kite - mark standard, but more needs to be done in continental europe. i therefore support the recent european commission consultation calling for eu countries to adopt resolution regimes. also, i think that we are much more likely to make progress in this field by agreeing on how national regimes can fit together to deal with international banks, rather than trying to devise an international resolution regime. the key issue then is burden - sharing, and that together the national regimes provide for equitable treatment of creditors whatever their domicile. a robust set of resolution regimes should not allow for bias in favour of domestic creditors. the uk, i should stress, is not one of those countries, but we are keen to work to produce a framework of resolution regimes that allows bias in favour of domestic creditors to end. thank you for listening to an account of the uk resolution regime. it is an important development as part of making our banks more robust to failure. it sits alongside enhanced regulation and supervision, and whatever structural changes may take place in the industry. but it remains work in progress, and in an important respect always will be because it needs to be ready to respond to threats that will evolve as well. and, finally, i should tell you my motto as head of the resolution unit, namely that i am happiest when we don ’ t need to perform a resolution.