Huw Jones

LONDON (Reuters – Banks are required to demonstrate how they can shut down their trading activities in a crisis, according to the Bank of England proposal.

Banks must submit plans to regulators detailing how collapsed operations can be stopped or transferred, without destabilising the markets or requiring taxpayer bailouts.

Friday’s proposals go even further, with even more specific demands for trading books that contain stocks, bonds, and derivatives valued at billions of pounds.

The BoE will announce final policy changes after a consultation. Banks will need to apply them by January 2025.

The BoE stated that its Prudential Regulation Authority (NYSE 🙂 conducted exercises in 2014 and 2021, which showed that the firms didn’t have all of the capabilities necessary to wind down their trading operations.

“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.

Because of the interdependence and scale of their trading activities, it is possible for the biggest firms to lose trading assets in an uncoordinated wind-down.

The proposed rules will result in a cost of 12million pounds (or $16.35 million). Banks may also have to change their operations in order to comply with the new regulations. According to the BoE, annual maintenance costs will be 2.5 million pounds.

Industry and lawmakers are pressuring regulators to relax rules for banks in order to keep the City of London a financial hub after Brexit.

BoE stated that its proposals are in compliance with the requirement to consider competitiveness when they strengthen market resilience.

According to the BoE, this “would help ensure that the UK continues to be an attractive jurisdiction for international financial institutions” and that London remains a top-ranking financial centre worldwide.

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