Great Britain: British banks are more resistant to crises

Lloyd’s Bank branch in London

According to the Bank of England, crisis preparedness at Lloyds Bank is better, but not good enough.


(Photo: Reuters)

London The Bank of England criticized the risk allocation of major British banks and called for improvements. The Bank of England (BoE) certifies that the eight financial institutions examined could wind up in an emergency situation without taxpayer assistance in their normal bankruptcy proceedings. But at the same time, central banks have discovered “shortcomings” in plans to dissolve major banks such as HSBC, Lloyds and Standard Chartered.

With its first-ever review of contingency plans, the Bank of England wanted to ensure that the events of the 2008 financial crisis would not be repeated. At the time, the country had to rescue Lloyd’s and then-Royal Bank of Scotland from bankruptcy with capital assistance worth billions in order to avoid economic damage. This so-called “too big to fail” problem is now considered to be largely resolved.

However, the British state still owns 48% of the shares of NatWest (formerly Royal Bank of Scotland). London sold its last Lloyd’s stock in 2017. As a lesson from the financial crisis, major systemically important banks, not only in Great Britain, had to significantly increase their hedge capital in order to better absorb economic shocks. They also had to legally protect retail banking from riskier investment banking.

Dave Ramsden, Deputy Governor for Markets and Banks at the Bank of England, said the investigation was “a key part of the UK’s response to the global financial crisis and shows how the UK has overcome a problem ‘too big to fail'”.

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He has succeeded in developing a settlement system that has succeeded in reducing risks to depositors and the financial system and better protecting public funds. Not the taxpayer, but now the investors and shareholders must first bear the financial consequences of the bank’s failure.

However, central bankers still see weaknesses in the financial resilience of some large banks. Shortage of capital in many institutions was the biggest problem during the financial crisis. The Bank of England has asked HSBC, Lloyds and Standard Chartered to improve their contingency plans. Of the eight major banks examined, the subsidiary of Spain’s Bank Santander received impeccable certification.

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