Courtesy of Gov.uk, because they care:
The Special Resolution Regime (SRR) established in the Banking Act 2009 (“the Banking Act”) confers a number of resolution powers on the Bank of England and HM Treasury. The Financial Services (Banking Reform) Act 2013 (the 2013 Act) confers on the Bank of England a further option for the resolution for banks, building societies, investment firms, and certain banking group companies: the bail-in stabilisation option.
Since the financial crisis, a wide-ranging programme of financial sector reform has been underway at domestic, European and international levels. The government set up the Independent Commission on Banking (ICB), charged with considering structural and related non-structural reforms to the UK banking sector to promote financial stability and competition. It reported in 2011, and one of its key recommendations was the introduction of a bail-in tool. Bail-in powers were also recommended by the Parliamentary Commission on Banking Standards (PCBS) in its June 2013 report. The Financial Stability Board’s (FSB), ‘Key Attributes of Effective Resolution Regimes’ – endorsed by the G20 – has recommended that resolution regimes put in place a bail-in tool in order to improve the toolkit for dealing with the failure of large, globally systemic banks.
Bail-in involves shareholders of a failing institution being divested of their shares, and creditors of the institution having their claims cancelled or reduced to the extent necessary to restore the institution to financial viability. The shares can then be transferred to affected creditors, as appropriate, to provide compensation. Alternatively, where a suitable purchaser is identified, the shares may be transferred to them, with the creditors instead receiving, where appropriate, compensation in some other form. Continue reading