Ruth Smith: Speech at the Florence School of Banking and Finance, European University Institute, Florence (to be published at 10am).

BoE resolution official Ruth Smith sets out the UK framework for resolving small and mid-sized banks: the new industry-funded recapitalisation payment mechanism under the 2025 Act, the removal of MREL for transfer firms, and a live review of the 40k-80k transactional-account threshold. This is a financial-stability and resolution speech: no rate decision, no vote, no inflation or growth read. For a rates desk the read-through is nil; it matters only at the margin for UK bank funding and equity via resolution cost allocation. Nothing here moves the front end or the curve.

What’s new: Nothing material for rates. The substantive items are resolution plumbing: the recapitalisation payment mechanism (Bank Resolution (Recapitalisation) Act 2025), the MREL exemption for transfer firms, and the transactional-account threshold review. All three were already trailed in last year's MREL policy update, so only the forward guidance that the updated approach lands in early 2027 is new. No monetary policy content.

KEY FINDINGS

• The new recapitalisation payment mechanism, introduced via the Bank Resolution (Recapitalisation) Act 2025, covers transfer costs up front and recovers them ex-post from the industry through the FSCS levy. It shifts resolution recapitalisation costs onto UK banks rather than taxpayers, a small contingent levy liability for the sector, but says nothing about rates.
• Transfer firms are no longer required to hold MREL above minimum capital requirements, in part because of the new industry-funded safety net. Reduces loss-absorbing debt issuance from mid-tier banks, a second-order sterling credit-supply consideration with no front-end read.
• The Bank is reviewing the indicative threshold of 40,000 to 80,000 transactional accounts as the intervention point for setting a transfer strategy for firms under £25 billion in assets. Hints more mid-tier firms could be routed to transfer rather than BIP, changing their future reporting and MREL treatment; publication targeted for early 2027.
• Preferred resolution strategies are tiered: bail-in for £40bn-plus, transfer or bail-in for the £25-40bn mid-tier, and BIP for most firms under £25bn. Structural backdrop only; no market-moving content.
• The SVB UK case is cited as proof the framework can override a preferred BIP strategy with a weekend private transfer to HSBC when continuity of critical services and public confidence demand it. Reinforces the 'non-zero failure regime' narrative that authorities can adapt in real time; nothing new for pricing.

FROM THE DOCUMENT

Introduced via the Bank Resolution (Recapitalisation) Act 2025, this tool is intended to cover associated losses or recapitalisation needs in a transfer via a new industry-funded safety net.

As I have noted, transfer firms are no longer required to hold MREL, in part due to the industry-funded safety net that this new mechanism provides.

As trailed in our update to the MREL policy last year, we are reviewing the indicative threshold of 40,000 to 80,000 transactional accounts as an intervention point for when a transfer strategy may need to be set for a firm under £25 billion in total assets.

I expect that we will publish our updated approach in early 2027