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.
The key difference from SIVs was that the underlying assets were largely purchased from third-parties and not necessarily in securities form. 6  BIS central bankers’ speeches  We now want to turn to an example of a structure that did at least partially survive the crisis: UK RMBS master trusts. These are versatile structures that allow an issuer to transform a portfolio of assets into a very different investment product. In principle, the master trust purchases mortgages from the bank and issues tailored bullet-maturity securities. The assets and the liabilities can be very different, e.g. the demand for the securities may be stronger in US dollars than in sterling, so an FX swap converts the cash-flows into dollars. Or most of the mortgages may be floating rate, whereas investor demand is stronger for fixed-rate product, and an interest rate swap(s) converts the cash flows accordingly. Mortgages typically pay down somewhat randomly and relatively quickly, whereas investors prefer straight-bullet maturities. The master trust can accommodate this by allowing on-going reinvestments of the pay downs and conversely allowing the trust to put assets back to the bank if the cash-flows are not sufficient to make a particular principal repayment. The downside is clearly that the on-going linkages between the issuer and the trust remain very strong, and it is thus hard to identify where economic risks ultimately reside. RMBS master trust securitisations are designed to be called on their bullet maturity date and that is how they were priced and traded.