The public authorities had no means of directing the insolvency process to prioritise the protection of depositors, the continuation of the bank’s critical functions or wider financial stability concerns. There was no way to recapitalise a failing bank by bailing in its creditors. As a result, when faced with the failure of a bank of any size, the UK authorities had only a stark choice between a very disruptive insolvency, putting financial stability at risk, or a taxpayer bailout. The UK was not of course the only jurisdiction to discover in the financial crisis that it did not have an effective regime for dealing with the failure of banks. And, as we discovered when Lehman Brothers failed, the authorities in different jurisdictions had no preagreed means of coordinating with each other on how to deal with the sudden failure of a major cross-border bank. Nor had they any confidence that the actions taken by authorities in another jurisdiction would align to their own national interest. With hindsight it is clear we had been lulled into a false sense of security. In Britain, Northern Rock represented the first major run on a bank since the failure of Overend Gurney in 1866. Unlike, for example, th  the US, the UK had not experienced bank runs in the 20 century. Banks in the UK had failed.
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.