Ritika Janiya
The Bank of England has reportedly told some of Britain’s biggest banks, including Barclays and Standard Chartered, to lift their preparedness for potential failures. The intention is to thwart financial instability and avoid social media-driven bank runs by requiring the banks to rapidly assess their financial positions. This review helps avoid a repeat of the 2008 financial crisis.
One’s position according to the review prevents what happened in 2008 from happening again and averts financial instability or social media-driven bank runs by ensuring that banks can quickly assess their financial positions.
The Bank of England has told large UK banks, including Barclays and Standard Chartered, that they need to be more resilient in case of failure. The warning is part of an initiative by the BoE to combat financial panic that can spread through social media and lead to a rush on banks.
In this second review, the BoE examined the scenario of banks failing without any danger of financial chaos or recourse to the use of taxpayers’ money. The institutions reviewed are Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK, Standard Chartered, and Virgin Money UK. It was supposed to spot the weaknesses that could bring about a repeat of the 2008 crisis, when the UK government spent £137 billion to save the banking system.
Although it found that all the banks could fail safely without the immediate help of the state, it also uncovered new problems that need to be fixed. In terms of valuation capacity, it has been a major concern how quickly banks can assign a value to their assets and liabilities. It matters because unless banks can do this with some speed, there is the danger of delays and confusion in the midst of a financial crisis.
It called for “resolution” planning, or how to handle the situation if a bank fails. This has become more pressing since last year’s mini banking crisis when Credit Suisse and SVB collapsed. The UK operations of SVB were forced to be taken over by HSBC during an emergency.
One of the most essential facts which are seen in the latest review by the BoE is to ensure that banks can identify their needs regarding liquidity. Liquidity represents adequate cash availability to meet depositor demand for withdrawals. A bank should be able to determine this within 24 hours. This is to avoid the case of bank runs initiated by mere speculation on social media, whereby people rush to withdraw money out of fear. In the past, such bank runs have been facilitated by anxious posts across platforms like X (formerly Twitter) and WhatsApp.
Some experts say social media has made bank runs even more perilous, turning them into what they call “bank sprints.” This means that instead of people gradually withdrawing their money, there can be a sudden, rapid rush.
The BoE, in its report, said, “Given that a resolution scenario may unfold quickly and various resolution actions may be considered, firms should be able to update and revise rapidly the key input assumptions of valuation models.” Banks must be ready to update these financial assessments at a moment’s notice in case things go wrong.
There were various areas pointed out that needed improvement by the BoE. For example, Barclays, HSBC, and Standard Chartered should speed up their reviews of assets and give more details. This will help in making a better judgment in case of a crisis.
The report also pointed at a key “shortcoming” at Standard Chartered. This was in regard to the willingness of the bank to adopt restructuring plans. Restructuring plans are important in the sense that they outline how a bank will change its operations to prevent its collapse.
The BoE said, “Resolution, especially of a large bank, will never be easy to execute given the complexity and risks – but it is better than the alternative of bailing out a failed bank with public funds.” This means that although it is difficult to handle big bank failures, it is still much better than using the money from the taxpayers’ pocket to bail them out.
It also announced that the next review of the banking sector would be conducted and released during the financial year 2026-27. The continuous review process keeps the banks prepared and doesn’t let another financial crisis occur.
The clear message of the BoE to the big UK banks was this: be prepared for potential failures not to panic and secure the financial system. Improved preparedness by these banks will prevent the 2008 crisis that engulfed the world from happening again. The BoE efforts have all been about making sure that banks can solve problems in a fast and efficient manner, keeping everyone’s money safe.
