In the UK, the Independent Commission on Banking suggested a capital surcharge of 3% of risk-weighted assets (RWA) for banks that could not be resolved. In its 2015 assessment of capital adequacy, the Financial Policy Committee estimated that capital would need to be around five percentage points higher if there was no resolution regime in place. It is also argued that resolution will not work; that while it may be a way of dealing with idiosyncratic failures, in a systemic crisis authorities will be reluctant to bail in shareholders and bank creditors. This binary distinction between idiosyncratic failure and fully blown systemic crisis seems to me oversimplistic. For sure, if we were suddenly to find ourselves pitched back into the middle of a systemic crisis, with a number of major institutions having failed or on the point of failure and a complete breakdown of trust and confidence, orderly resolution of individual banks in itself is unlikely to be able to stabilise the system as a whole. But we did not suddenly arrive in late 2008 in the midst of full blown financial crisis. Had the authorities had better, less disruptive options available over the previous 18 months to deal with a series of failing institutions, the disruptive, explosive nature of the crisis might well have been minimised. There would still have been very major losses and failures. But we would, in my view, have had a much better chance of a more orderly, less damaging correction of an overleveraged banking system.
Ten years on: Lessons from Northern Rock  Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  Single Resolution Board Annual Conference, Brussels Friday 29 September 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  th  This month marks the 10 anniversary of the failure of Northern Rock. The failure of a middle size British mortgage bank was followed by the collapse of much bigger and globally systemic banks. But the picture of the queues forming outside the branches of Northern Rock remains for many the picture of the start of the financial crisis. Prior to September 2007, I knew of the existence of bank runs from economic history books, the experience of developing and emerging economies and the film of Mary Poppins. Seeing one happen in London brought home that it is never different “this time”. The fundamental basis of the financial system is trust. And trust, if not properly managed and protected, can disappear instantaneously. And once that happened, the UK had no effective way of managing the failure of a bank. And no way to avoid the taxpayer having to step in to stop such a failure leading to the loss of critical services to the economy and contagion to other banks.