With the 2021 Budget just around the corner I want to take you back to the April 2009 Budget, just under twelve years ago, when, in my role as Chief Economic Adviser to the Treasury, I had to advise on the consequences of the deficiencies in the global and UK pre-crisis regulatory framework. By spring 2009, what had started in the summer of 2007 as a liquidity crisis in global financial markets turned into a solvency crisis for a number of global and UK firms, resulting in the UK government bailing out banks and injecting public  1  For more information see the Bank of England’s written evidence submitted to the TSC’S 2017 capital inquiry 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  money to the tune of £ to stabilise the financial sector2. The contingent liabilities that the UK government had taken on to support bank funding or to underpin some major banks’ balance sheets dwarfed that sum. At that time, we saw the very serious consequences of the lack of appropriate focus on the safety and soundness of individual banks and the financial system as a whole, including the absence of a credible resolution regime – by which I mean a regime that sets out our aims, to manage the orderly failure of institutions, accompanied with the tools to deliver them.
The UK regulatory regime is not designed to ensure that no firm ever fails. Having a competitive market means lowering the barriers to entry and exit; the orderly failure of a firm with minimal financial stability implications is a natural part of an efficient economy. This is why we have modified insolvency rules for less systemic firms, which include an explicit objective to prioritise the repayment of eligible depositors by the FSCS within seven days, or have their accounts transferred to another firm. These powers also seek to act as a backstop, complementing other important supervisory tools such as having comprehensive recovery and solvent wind-down plans for firms to withdraw from the market before failure. Our disclosure requirements, as part of the RAF, also reflect this proportionality, with only the largest firms currently in scope of our reporting and disclosure requirements. We are also taking a proportionate approach in applying RAF for our international hosted firms20 by looking at whether they can achieve resolvability outcomes which are broadly comparable to our framework. In many cases these firms may be able to rely on group wide capabilities, avoiding unnecessary duplication. By requiring firms to meet outcomes and in not being prescriptive, the RAF also acknowledges that the depth and type of capabilities required to remove barriers will vary by firm and firms may be able to demonstrate that certain capabilities are not relevant to them – simpler firms will need to develop correspondingly simpler capabilities.