Principles and techniques to resolve large banks whose failure could have systemic consequences

This paper is published as a tribute to Peter Brierley, who served as a Bank of England official for four decades before his retirement in 2017. Peter, very sadly, passed away last year. The paper was written before the Global Financial Crisis and considers in detail the main techniques for resolving large banks and containing the systemic consequences that could arise from their failure. This paper highlights a number of issues that are of crucial importance in resolving large banks, notably the need as far as possible to avoid insolvency or – if that cannot be done – liquidation, the ways in which certain activities of a large bank may be wound down while those bank functions of systemic importance are preserved, and finally the trade-off between preserving financial stability on the one hand and limiting moral hazard on the other. Peter and his team would later work closely with HM Treasury to design the emergency legislation and special powers to address the failure of Northern Rock.