UK banks still lack safeguards

HSBC, Lloyds Bank and Standard Chartered have been ordered to address “deficiencies” in their plans so as not to harm customers and taxpayers if they fail.

Several more of Britain’s biggest banks need to “upgrade” their disaster preparedness plans, the Bank of England has said.

After the 2008 financial crisis, the UK’s largest lenders were ordered to draw up ‘wind-up plans’.

Outlook: Following the 2008 financial crisis, the UK’s largest lenders were ordered to draw up ‘resolution plans’

These should ensure that banks can act in an orderly manner in the event of an imminent collapse – without having to ask the taxpayer for a costly bailout.

Regulators are broadly happy with those plans, and in its first public review of so-called resolution preparations, the Bank of England said every major UK lender “could certainly fail, remain open and continue to provide banking services to the economy”.

But Santander – owned by Spain’s Banco Santander – was the only one of the UK’s eight largest lenders to complete the assessment with an impeccable report card.

Dave Ramsden, Deputy Governor of the Bank of England, said: “Securing the resolution of a large bank will always be a complex challenge, so it is important that both we and the large banks continue to prioritize working on this issue.”

The 2008 financial crisis exposed a number of weaknesses in the UK banking system. The government spent £137 billion of taxpayers’ money to prop up the banks.

The Bank of England and Treasury hope tighter scrutiny of lenders coupled with regulations forcing them to hold larger capital buffers will prevent this from happening again.

If a lender were to fail now, “shareholders and investors – not taxpayers – would primarily bear the banks’ losses and the cost of recapitalization,” the bank said yesterday. Despite this, HSBC has been urged to improve measures to manage its international infrastructure in the event of a crisis.

It said the changes needed to do this were “complex” and would get the job done over a “multi-year period.”

Lloyds Banking Group’s ability to make “timely and sound decisions” about its liquidity has been questioned and the bank said it is already making improvements in this area. Lloyds was one of the banks to receive a £20.3 billion taxpayer bailout in 2008.

NatWest – which was launched after its own $45 billion bailout

Standard Chartered has been criticized for failing to rate collateral or assets backing loans. It said it was improving its analysis tools.