Britain's biggest banks will hand over their worst economic case survival plans to the Financial Services Authority (FSA) next month ahead of the G20 summit in South Korea.
The recovery and resolution plans, more commonly known as "living wills", will form part of the G20 talks on reform of the global banking system on 11 and 12 November.
HSBC, Barclays, Royal Bank of Scotland (RBS), Standard Chartered, Lloyds Banking Group and Santander will all submit draft plans next month as part of the FSA's living will pilot programme. Accountants Deloitte, KPMG, and Ernst & Young are advising at least one bank each.
The FSA is keen that the plans be rolled out across Britain's banks to ensure that they either avoid failing or at least mitigate the worst impacts of collapse should another financial crisis hit the sector. The City has been widely condemned for its role as an accidental architect of the global meltdown. The nastiest example of public outrage came when protesters clashed with police during the G20 summit in London last year.
The recovery and resolution elements are subtly different. The former help banks survive should they come under extreme financial stress; the resolution plans help authorities wind down failed banks, potentially protecting customer deposits. Banks have a wide range of operations that can end up deeply entwined, making it difficult to save any remaining strong aspects of the business in event of failure of an overall group.
"The FSA is looking for advance information on barriers to resolution," said a City source. "[If they are] separating legal entities should part of the bank fail, how simple would it be to strip out economic assets like retail deposits?"
Another source said that the recovery plans would help an "institution that is in danger take a look at itself and get out of danger". For example, the plan should show what a bank would need to do to survive depending on the capital on its balance sheet through "a menu of options".
The drafts submitted to the FSA by the end of October would be far from a finalised living will. They need to be constantly updated reflecting the changes in the financial services and broader economies.
The G20 countries each have crisis management groups. The UK group on which the FSA sits will use the living will findings to feed in to the G20's Financial Stability Board, which has been asked to identify and fix weaknesses in the global banking system. An FSA spokeswoman said: "Our pilot continues and is an iterative process."
The Seoul meeting is the first time that a country outside the G8 has hosted a G20 summit. France will take over the chair of the G20 from November.Reuse content