Member

The noble Lord also asked for confirmation that the new mechanism will not be used to transfer costs from shareholders and creditors on to the wider banking sector. It is an important principle of the UK’s resolution regime that, when a banking institution fails, its shareholders and creditors should bear losses. Existing provisions relating to this will continue to apply alongside the new mechanism. This includes Sections 6A and 6B of the Banking Act 2009, which require the Bank of England to ensure that shareholders and creditors bear losses when a banking institution fails. This is an important principle that will continue to apply when the new mechanism is used. This involves cancelling, diluting or transferring common shares so that shareholders are the first to bear losses. Where necessary, the Bank of England must also reduce the value of particular types of instruments, known as additional tier 1 and tier 2 instruments, or must convert such instruments into shares.