Special Resolution Regime

The Banking Act 2009 creates a Special Resolution Regime (SRR) which gives the Tripartite authorities a permanent framework providing tools for dealing with distressed banks and building societies. And it gives the Bank of England a new role in selecting from the statutory resolution tools. The SRR powers came into force on 21 February following the expiry of the emergency legislation in the Banking (Special Provisions) Act.

The SRR powers allow the authorities to:

• transfer all or part of a bank to a private sector purchaser
• transfer all or part of a bank to a bridge bank - a subsidiary of the Bank of England – pending a future sale
• place a bank into temporary public ownership (the Treasury's decision)
• apply to put a bank into the Bank Insolvency Procedure (BIP) which is designed to allow for rapid payments to Financial Services Compensation Scheme (FSCS) insured depositors
• apply for the use of the Bank Administration Procedure (BAP) to deal with a part of a bank that is not transferred and is instead put into administration

The Banking Act creates clearly-defined roles for operation of the SRR. The Financial Services Authority (FSA), in consultation with the Bank and the Treasury, makes the decision to put a bank into the SRR. HM Treasury would decide whether to put a bank into temporary public ownership, and otherwise, the Bank of England, in consultation with the other authorities decides which of the tools to use. The FSCS has a role in relation to depositors covered by its depositor compensation scheme.

The Act sets out five key objectives in choosing which resolution tools to use:

• to protect and enhance the stability of the financial systems of the UK
• to protect and enhance public confidence in the stability of the banking systems of the UK
• to protect depositors
• to protect public funds
• to avoid interfering with property rights in contravention with the Human Rights Act 1998.

To carry out its new responsibilities the Bank has set up a Special Resolution Unit which will lead in the work required to select and implement a resolution tool.