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By Huw Jones
LONDON, Oct 8 (Reuters) - Banks must show from 2025 how
their trading operations could be shut down in a crisis without
spreading contagion across markets, the Bank of England proposed
on Friday.
Since the global financial crisis in 2008-09, banks must
have plans vetted by regulators showing how collapsing
operations could be shut down or transferred without
destabilising markets or the need for taxpayer bail-outs.
The proposals set out on Friday go further with more
granular demands regarding trading books loaded with stocks,
bonds and derivatives worth billions of pounds.
Following a public consultation, the BoE will publish final
policy changes in the first half of 2022 which banks will have
to implement by January 2025.
The BoE said its Prudential Regulation Authority carried out
exercises between 2014 and 2021 which demonstrated that firms
lack the full capabilities required to carry out an orderly
wind-down of their trading activities.
"The PRA considers this lack of capabilities to be a market
failure, posing risks to the PRA’s safety and soundness
objective, and has therefore decided to clarify its expectations
in this area," the BoE said.
"For the largest firms, the destruction of trading book
asset value in a disorderly wind-down risks impacting UK
financial stability, due to the scale and interconnectivity of
their trading activities."
Applying the proposed new rules would mean a one-off cost of
12 million pounds ($16.35 million) as banks may have to
restructure operations to make the plans workable. Annual
maintenance costs would be 2.5 million pounds, the BoE said.
Regulators are under pressure from industry and some
lawmakers to ease rules on banks to maintain the City of London
as a global financial centre after being cut off from the
European Union by Brexit.
The BoE said its proposals were in line with a requirement
to have regard to competitiveness as they reinforce market
resilience.
"This would help to ensure that the UK remains an attractive
domicile for internationally active financial institutions, and
that London retains its position as a leading international
financial centre," the BoE said.
($1 = 0.7339 pounds)
(Editing by Mark Heinrich)
