(Bloomberg) -- The Bank of England ordered Standard Chartered Plc’s to improve its plan to deal with its hypothetical demise after finding the lender has “shortcomings” that could impede its ability to manage its resolution.
StanChart was the only one of eight UK lenders found to have such a failing in its so-called “living will,” though Barclays Plc, HSBC Holdings Plc, Lloyds Banking Group Plc and Virgin Money UK Plc were all told to make “enhancements” to their preparations.
Nationwide Building Society, NatWest Group Plc and the UK arm of Banco Santander SA all emerged with “no material issues,” a better overall outcome than the first exercise in 2022, when only Santander escaped without recommendations.
“The Bank notes the significant work that Standard Chartered has already undertaken to improve its restructuring planning capabilities since 2022,” the central bank said in a statement, adding that it would “closely monitor” progress on the topic.
Banks were asked to prepare these living wills in the aftermath of the financial crisis to ensure their hypothetical failures would be as painless as possible for the economy. The BOE said Tuesday’s results provide reassurance that the country’s biggest banks could safely enter resolution while remaining open and they also show lenders’ shareholders and investors — not taxpayers — could stomach the costs of their failure.
Continued Weaknesses
Standard Chartered’s shortcoming was in the firms’ ability to execute its restructuring plan, an area of weakness that was also highlighted for the lender in the 2022 exercise.
A spokesman for StanChart said the lender “remains committed to working with the BOE and other authorities to continuously improve its preparedness for resolution.”
A shortcoming is more serious than an area for further enhancement, though its not as serious as a “deficiency” or a “substantive impediment.” None of the banks’ plans were given either of the two more serious labels.
Valuations and restructuring planning were the two areas for enhancement flagged for Barclays, while HSBC was asked to do enhance its funding in resolution and valuation capabilities. Lloyds was asked for further work on some valuation processes. Virgin Money was asked to do more work to ensure it could “operate together in a timely manner in a resolution scenario, including the pre-resolution contingency planning period.”
Barclays said in a statement it looks forward to working with the central bank on its resolution capabilities and that it was pleased to note the BOE had found no shortcomings, deficiencies or substantive impediments with its plans.
“As expected, given the more detailed assessment and the ongoing nature of maintaining and enhancing resolvability, both the Bank and the major UK banks themselves have found areas for future work as part of this assessment that were not identified as actions from the first assessment,” Dave Ramsden, deputy governor for markets, banking, payments and resolution at the Bank of England, said in the statement.
With many banks performing better in the exercise, the central bank said it would postpone the next assessment one year later than it originally planned. The next set of results are now expected to be published in 2027.
The process is similar to one in the US, where banks have been writing living wills since 2008. There, regulators in their most recent review ordered JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. to improve their plans after finding weaknesses in how they would deal with derivatives under resolution.
“The standards the BOE are assessing against continue to get higher and evolve,” said Alastair Morley, a Deloitte partner who specializes in bank recovery and resolution. UK lenders have “all done significant amounts of work in this space and improved standards,” he said.
Resolution planning has become a hot-button issue for banks and their regulators around the world after the sudden collapse of Credit Suisse last year.
(Updates with Barclays statement in the 10th paragraph. An earlier version of this story corrected the attribution of the quote in fourth paragraph.)
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