Banking Act 2009 and the establishment of the Special Resolution Regime (SRR)

The special resolution regime (SRR), established by the Banking Act 2009, is the UK’s statutory toolkit for resolving failing banks and building societies. It was used to resolve the Dunfermline Building Society, in March 2009.

The Banking Act replaced the temporary powers in the Banking (Special Provisions) Act 2008, which had been created on an emergency basis in order to bring Northern Rock into temporary public ownership. The Bank of England is the lead resolution authority in the SRR.

The objective of the Banking Act 2009 is to enable a swifter and more orderly resolution of failing banks and building societies. This is made possible through the clear set of powers that the Act creates, as well as careful controls about when they can be used. This is an essential means to promote financial stability and equip national authorities with the tools needed to effectively respond to a crisis, to protect taxpayers and the broader economy. Use of the SRR must balance the statutory objectives of protecting depositors, maintaining financial stability, enhancing public confidence in the banking system, protecting public funds and preserving property rights.

There are three principal tools that the SRR contains:

Private sector purchase – under the SRR, the Bank of England can arrange the onward transfer of all or part of a failing bank’s business;
Bridge Bank – the Bank of England can transfer some or all of a failing bank’s business to a temporary vehicle, owned and controlled by the Bank of England; and
Temporary public ownership – the Treasury can temporarily take a failing bank out of the private sector in order to maintain financial stability.

The SRR also includes a bank insolvency procedure, to ensure that eligible depositors are compensated quickly by the Financial Services Compensation Scheme by having their account transferred to another institution.

The Banking Act received Royal Assent on 12 February 2009. A copy of the Act and explanatory notes are available as follows:

Reports

The following report has been prepared in accordance with section 231 of the Banking Act 2009. The Treasury is required to prepare six-monthly reports about any arrangements entered into which involve or may require reliance on section 228(1) of the Act. Section 228(1) allows the Treasury to make payments from either money provided by Parliament or from the Consolidated Fund in respect of giving financial assistance to a bank or other financial institution. The first official reporting period was from 1 April to 30 September 2009 and the first report was published alongside the Budget in March 2010.

Banking Act 2009 and the establishment of the Special Resolution Regime (SRR)

Reports

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