Firms whose failure is unlikely to have financial stability consequences also have a part to play: they need to take a forward-looking realistic assessment to ensure they prepare for the event that they fail, which is likely to be a bank insolvency, and meet PRA rules on The RAF applies to such firms where they are a ‘material subsidiary’ of an overseas-based banking group for the purposes of setting internal MREL in the UK. 20  9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  depositor protection. In placing an emphasis on the responsibility of individual firms to understand and plan for their own resolution, we are making firms accountable for this essential planning, reinforcing the credibility of those plans and the regime as a whole. Conclusion  Resolvability is better regarded as a spectrum than as a binary judgement. It is about ensuring authorities have credible options and the flexibility to respond to a crisis. A resolution is ultimately a transaction which occurs in a crisis situation and is unlikely to ever be a smooth process. But the work done by firms under the RAF should increase the chances that resolution is conducted in an orderly fashion and disruption to the financial system is minimised. Banks and building societies need to prepare themselves fully for these situations now.
As a result of these various failings globally and domestically the financial system acted as an amplifier, intensifying the UK economic downturn at great economic and fiscal cost. Budget 2009 detailed the largest fall in UK GDP since the Second World War and forecast a near doubling in the fiscal debt ratio in just four years, from 36% of GDP in 2006-07 to 69% in 2010-11. In order to underpin the UK’s economic and fiscal position, the Government took the unusual step, at least in public finance terms as I am sure this expert audience would appreciate, of making, what amounted to, a provision of up to £ or 3½% of GDP, for expected losses on its many and various interventions in the UK banking system.3  Clearly, the options authorities had to manage the failure of financial firms were insufficient, which led to some difficult and disruptive choices. The lack of a credible resolution framework is self-evident in the scale of taxpayer bailout. Of course, in the absence of the counterfactual, it is impossible to precisely quantify the impact of the lack of a credible regime. But I agree with my colleague, Jon Cunliffe, that the negative impact was likely to be considerable.4  Transparency around what is likely to happen if a bank fails is a fundamental complement to a credible resolution regime. Authorities previously relied upon it being ‘constructively ambiguous’ as to whether or not they would bail out a failing bank.