The Bank of England is considering contentious plans to force more international banks to set up subsidiaries in the UK. According to the Financial Times, the BoE is considering this move as part of its review of the dramatic collapse of Silicon Valley Bank. Subsidiaries – such as the one SVB had in London – have their own capital and liquidity and, in a “failing bank” situation, can be taken under the control of local regulators. But such a move would be unpopular with the international banking industry, as setting up a subsidiary is more expensive than merely maintaining a branch in the UK.
At present, the BoE’s supervisory approach suggests that banks with £100 million of retail and “small company transactional deposits” should establish a subsidiary. The guidance also indicates that, where a bank has more than 5,000 retail and small company customers, it may also need to set up a subsidiary, although these are described as not “hard” thresholds and may differ on a firm-by-firm basis.
The FT’s sources – described as “people familiar with the situation” told the FT that SVB’s failure – which some believe highlighted the benefits of subsidiaries – has prompted the BoE to re-evaluate these thresholds. They added that the question of compelling more banks to establish subsidiaries has been discussed with City minister Andrew Griffith in recent weeks.
Not everyone agrees that such a move would be beneficial. If the BoE does decide to pursue the changes, the next step would be an industry consultation, with the UK Treasury kept in the loop.
SVB’s collapse has also prompted the BoE to review the UK’s deposit insurance guarantee scheme and the regime for handling bank insolvencies.
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