Operational guide to transfer resolution

1: Introduction

Purpose of the guide

1.1 The purpose of this document is to provide practical information on how the Bank of England (the Bank) might execute a ‘transfer resolution’, that is to say a transfer of shares or the business of a failed firm to either a private sector purchaser (PSP) or a bridge bank using the Bank’s resolution powers. It focuses on the operational processes and arrangements that may be involved in each scenario.

1.2 It is likely to be of particular interest to those who may be directly affected by or involved in a transfer. This includes:

• firms where transfer is the preferred resolution strategy or firms who are projecting to approach the relevant thresholds in the near future;
• firms with modified insolvency preferred resolution strategies, as a transfer strategy may still be pursued for these firms where appropriate to advance the special resolution objectives;
• shareholders and holders of regulatory capital instruments (and other non-excluded liabilities) which may be subject to losses in the event of a transfer;
• other creditors of such firms and other market participants that may be involved in the execution of a transfer; and
• others who would have an interest in resolution actions, such as host authorities of UK banking groups subject to a preferred resolution strategy of transfer.

1.3 To support understanding and provide a greater degree of transparency regarding how the Bank might conduct a transfer in practice, we set out a stylised timeline of the actions required to use either the PSP or bridge bank transfer tools:

1.4 In terms of the structure of this document, Part 1 provides an introduction to the transfer resolution strategy. Part 2 focuses on the Bank’s approach to executing a transfer to a PSP, exploring auctions and bidder selections. Part 3 focuses on the Bank’s approach to executing a transfer to a bridge bank, outlining how operations and governance may be structured. Part 4 summarises the Bank’s recapitalisation payment mechanism following introduction of the Bank Resolution (Recapitalisation) Act 2025 (BRRA 2025) and explores possible uses of the recapitalisation payment mechanism. Selected terms and abbreviations are provided in the Abbreviations and glossary.

1.5 Annex 1 of this document contains two previously used transfer instruments:

• Dunfermline Building Society (Dunfermline) Property Transfer Instrument (2009) – which transferred all property, rights and liabilities of Dunfermline to Nationwide Building Society (Nationwide), other than excluded property, rights and liabilities.
• Silicon Valley Bank UK (SVBUK) Limited Mandatory Reduction and Share Transfer Instrument (2023) – which reduced the value of all capital instruments to zero, cancelled all liabilities owed by SVBUK in respect of the capital instruments (including accrued interest), extinguished all rights of any holder or beneficial owner of capital instruments and cancelled said instruments and transferred all shares in issue to HSBC UK Bank.

1.6 While these instruments provide a useful starting point, any future instruments will be tailored by the Bank for use in each specific case. As the exact content in any instrument will be determined by the facts and circumstances of the individual case, the Bank reserves the right to depart from the structure and content of the instruments previously used, should it be considered appropriate.

1.7 Annex 2 provides an illustrative contents list for a data room which, if created by a failing firm, would support the execution of a transfer. Any data room contents would be determined on a case-by-case basis depending on the firm and circumstances in question.

1.8 While the operational guide is intended to be a standalone document, it is not intended to provide a comprehensive overview of all aspects of a transfer resolution. Where further information is required, users should consult the Bank’s:

1.9 HM Treasury (HMT) has also published a Special Resolution Regime (SRR) Code of Practice (CoP) which provides guidance as to how, and in what circumstances, the authorities (the Bank, the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) and HMT) will use the stabilisation powers and the recapitalisation payment mechanism. As set out in the SRR CoP and crisis management memorandum of understanding, HMT has sole responsibility for authorising the use of any stabilisation power by the Bank which would have implications for public funds.

1.10 This document is intended to increase awareness and understanding of the actions that may take place in a transfer resolution in the UK. However, resolution is a crisis management tool, and the Bank retains full discretion as to how it responds to the circumstances of any particular case (subject to HMT’s authorisation noted in the paragraph above). As such, any actions taken in a transfer resolution may differ from those set out in this guide.

1.11 If you wish to contact the Bank regarding this publication or any other aspects of transfer, please email: Enquiries@bankofengland.co.uk.

Resolution regime

1.12 The Bank, as the UK’s resolution authority, is responsible for taking action to manage the failure of certain types of financial institution, including UK-headquartered banking groups, UK-incorporated banks and building societies, and PRA supervised investment firms (together, firms),^{footnote [1]} a process known as ‘resolution’.

1.13 If a firm is failing or likely to fail, and the criteria set out in the Banking Act 2009 (the Banking Act) are met, then the Bank may use stabilisation powers to advance one or more of the special resolution objectives. More detail on these criteria and the special resolution objectives can be found in the Bank’s approach to resolution.

Transfer tools

1.14 Three of the stabilisation tools are types of transfer, namely:

• transfer of a failed firm or all or part of its business to a PSP;
• transfer of a failed firm or all or part of its business to a bridge bank controlled by the Bank; and
• transfer of all or part of the business of a failed firm or of a bridge bank to an asset management vehicle (AMV) controlled by the Bank.

1.15 Transfer to a PSP is a transfer of all or part of a firm’s business, including either the firm’s shares or its property, rights and liabilities, to a willing and appropriately authorised buyer without the need for the consent of the failed firm, its shareholders, customers or counterparties.

1.16 Transfer to a bridge bank is a transfer of all or part of a firm’s business, including either the firm’s shares or its property, rights and liabilities, temporarily to a company controlled by and wholly or partially owned by the Bank. This power ensures that the firm’s critical functions are maintained until it is sold (eg through an initial public offering or onward transfer of either part or all of the business to a PSP). If a sale is not conducted, the firm’s operations will be wound down at the end of the post-transfer period.

1.17 Transfer to an AMV is a tool which can only be used in conjunction with the transfer tools described above and/or bail-in tools. This transfer allows a firm’s or bridge bank’s assets, rights and liabilities to be transferred in specific circumstances, with a view to maximising the value of assets through eventual sale(s) or orderly wind down. The vehicle would be wholly or partially owned by the Bank or HMT and controlled by the Bank.

1.18 Where a transfer is only partial, the remaining parts of the business may be placed into either a liquidation or administration procedure tailored for the insolvency of deposit-taking firms. If the remaining part of the business provides services that are still required by the acquirer of the transferred business, a bridge bank or an AMV, a bank administration procedure (BAP) may be more appropriate. The required part of the firm can continue to provide the necessary services until permanent arrangements are established. After this, it will be wound up. This was the approach used in the case of the failure of Dunfermline.

1.19 Transfer tools impose losses on shareholders and creditors. Equity of the failed firm initially absorbs losses, impacting shareholders, before further write-down and/or conversion of regulatory capital instruments (and other non-excluded liabilities) into equity of the failed firm, to effectively recapitalise the institution before the transfer. Losses may also be imposed on creditors by placing any residual claims they have on the failed firm (that are not transferred to an acquirer or bridge bank) into administration.

1.20 The option to use the bail-in stabilisation tool in conjunction with a transfer remains, provided there is MREL available to recapitalise the firm. Further information on how a bail-in is executed can be found in the Operational guide to bail-in resolution.

Transfer strategy application

1.21 Any of the transfer tools may be considered to execute a resolution for a firm where transfer is deemed by the Bank to be a credible resolution strategy. These are most likely to be firms with total assets between £25 billion and £40 billion, having considered various factors as outlined in the Bank’s MREL SoP.^{footnote [2]} Where the preferred resolution strategy is transfer, such firms are required to develop capabilities to support a transfer resolution as set out in the Bank’s RAF SoP.

1.22 The RAF SoP applies to firms that have a bail-in and a transfer preferred resolution strategy and requires them to develop capabilities to prepare for a resolution. For transfer firms, the RAF SoP sets out fewer ex-ante policy requirements than it does for the largest firms with bail-in preferred resolution strategies. In addition, under the MREL SoP, transfer firms are not required to maintain additional loss-absorbing resources in addition to their minimum capital requirements – known as MREL – to support their recapitalisation in resolution, nor are they required to plan for restructuring. Where firms do not have sufficient loss-absorbing capacity to ensure successful execution of a transfer resolution strategy, the new recapitalisation payment mechanism – as introduced by the BRRA 2025 legislation, effective from July 2025 – enables funds sourced from the banking sector (via the FSCS) to be used for this purpose.

1.23 In some cases where a smaller firm fails, the public interest – particularly in respect of continuity of banking services – may be better served using transfer powers rather than the relevant modified insolvency procedure, even where insolvency is the preferred resolution strategy. Examples of this include where there is disruption arising from services the firm provides stopping or indirectly by negatively affecting confidence in the financial system or similar institutions.

1.24 While some firms will retain a preferred resolution strategy of insolvency, the recapitalisation payment mechanism provides the Bank with additional flexibility. It broadens the scope of firms that may be considered suitable for transfer at the point of failure and improves the likelihood of identifying a suitable buyer over a resolution weekend for a failing firm with insufficient loss-absorbing capacity.

1.25 The absence of a buyer or of a suitable bid would require the Bank to choose between placing the firm into insolvency or transferring some or all of the firm’s business to a bridge bank. In considering the use of a bridge bank, the additional execution risk and risk to public funds of managing a bridge bank would inform our assessment on the most appropriate strategy to pursue to advance the special resolution objectives.

1.26 The expected outcomes of using a transfer strategy will be compared to those of putting the firm into insolvency when assessing whether use of the transfer tools is in the public interest. In making this comparison, and as we seek to advance the special resolution objectives, we would consider the expected costs of all options given implications for use of public funds.

1.27 At the time of publication, the Bank has used the transfer tools twice:

• March 2009 – Dunfermline: core parts were transferred to Nationwide with remaining parts transferred to a temporary bridge bank owned and controlled by the Bank. The bridge bank entity was subsequently transferred to Nationwide in June 2009, following a competitive auction process conducted by the Bank. A BAP was used to wind up assets that were not transferred.
• March 2023 – SVBUK: the Bank planned for a variety of resolution strategies simultaneously. Although SVBUK’s preferred resolution strategy was a modified insolvency procedure, a transfer was ultimately pursued, with the entire firm eventually sold to HSBC UK Bank. Alongside this, the capital instruments issued by the firm were fully written down to bear losses.

1.28 A firm’s preferred and pursued resolution strategy may differ at the point of failure to address public interest in the advancement of one or more of the special resolution objectives – as was the case with SVBUK. As such, it is important that firms and authorities are agile and adaptable.

2: Private sector purchaser operational guide

Preparing for a transfer

2.1 A successful transfer requires several steps, many of which authorities will complete before placing a firm into resolution and transferring it to an appropriate PSP. This process is similar to a normal corporate finance transaction but conducted within a very constrained time frame, under strict confidentiality, and using a statutory mechanism to effect share or property transfer to the purchaser (Figure 3 outlines illustrative steps to execute a transfer). Our preparations for transfer, and the extent to which these steps are followed, depend on the amount of advance notice the Bank has that a firm is in distress and is failing or likely to fail. In a faster-burn situation, we may have to compress our preparations, and the processes outlined throughout this guide may be altered accordingly.

2.2 Ahead of any resolution action, the relevant authorities must assess whether the conditions for a firm to be placed into resolution are met. The four general conditions which must be satisfied are contained in section 7 of the Banking Act.^{footnote [3]}

2.3 The Bank will ensure that the assets and liabilities of the firm are valued for the purpose of informing the decisions to be taken by the Bank and the PRA, including the assessments as to whether the firm is failing or likely to fail and the level of recapitalisation required.^{footnote [4]} The Bank expects to appoint an independent valuer^{footnote [5]} to carry this out.

2.4 In parallel with appointing an independent valuer, the Bank begins preparing for the sale process by engaging corporate finance advisers. The Bank has access to advisers through the Resolution Procurement Framework.^{footnote [6]} These advisers draw on their existing market knowledge to help the Bank run a competitive, targeted and efficient sales process.

2.5 At this initial stage of planning, advisers in close consultation with the Bank would be expected to develop the marketing process in accordance with the requirements set out in section 11A of the Banking Act. Under these requirements, the Bank must ensure the marketing approach is as transparent as possible, having regard to the circumstances and the need to maintain financial stability; ensures no conflict of interest; takes account of the need to act quickly to address the situation where a bank is failing or likely to fail; and aims to maximise, as far as possible, the sale price for the securities or property, rights or liabilities involved. The marketing arrangements must not favour or discriminate between potential purchasers or grant an unfair advantage to a potential purchaser. The Bank is not required to meet these marketing requirements where the Bank considers that it would undermine advancement of one or more of the special resolution objectives.

2.6 Identifying suitable bidders forms the essential first step in the marketing process. It is important to identify potential acquirers that have the operational capability, strategic alignment, and financial resources to complete a transaction within the required timeframe. When engaging with prospective bidders, the Bank and its advisers will consider a range of relevant factors in determining which bidder might best advance the special resolution objectives, including:

• appropriateness of regulatory permissions and group/entity structures;
• transparency of ownership and accountability structures;
• adequacy and availability of financial resources;
• business model compatibility and strategic alignment;
• governance and senior management capability;
• ability to complete a transaction in the required timeframe; and
• possible effects on public confidence.

2.7 In contrast to standard merger and acquisition (M&A) transactions, the Bank faces distinct challenges when looking to transfer a failing firm. As any resolution-related transfer will likely occur under distressed conditions, it is important to maintain strict confidentiality throughout the marketing process to ensure that no premature disclosure or actions undertaken by the Bank destabilise the firm or undermine the integrity of the sale. At the same time, this confidentiality must be carefully balanced against the need to provide sufficient transparency to prospective bidders to preserve a fair, competitive and credible auction.

2.8 Section 11A of the Banking Act notes that public disclosure of the marketing of any securities issued by or any property, rights or liabilities of the failing firm may be delayed where certain conditions are met. The firm is solely responsible for making any decision to delay disclosure of inside information. Under Article 17(4) of Regulation (EU) No 596/2014 (as assimilated into UK law), a firm is permitted to delay disclosure of inside information if immediate disclosure is likely to prejudice the legitimate interests of the firm, delay would not be likely to mislead the public, and the firm is able to ensure the confidentiality of the information. If a firm has delayed the disclosure of inside information under Article 17(4), it must notify the FCA that disclosure of the information was delayed immediately after the information is disclosed to the public. Upon request of the FCA, the firm must provide a written explanation of how the applicable conditions were met. Under Article 17(5), to preserve the stability of the financial system, a firm may on its own responsibility delay the public disclosure of inside information where the following conditions are met:

• the disclosure of the inside information entails a risk of undermining the financial stability of the issuer and of the financial system;
• it is in the public interest to delay the disclosure;
• the confidentiality of that information can be ensured; and
• the FCA has consented to the delay on the basis that the conditions in (1) to (3) are met.

2.9 The Bank and the FCA would liaise closely in circumstances where a request has been made by a firm to the FCA to delay disclosure of inside information.^{footnote [7]}

Auction process

2.10 After identifying suitable bidders and completing initial engagement, the Bank will commence the auction process. The timing, sequencing and structure of this process will depend heavily on the specifics of the case, including the speed and nature of the firm’s failure. It may be the case that a firm has already begun a going concern sale process as part of its suite of recovery actions. The Bank will need to carefully manage the transition from any firm-led sale process already underway into a Bank-led transfer process. Where appropriate, the Bank will leverage any work already undertaken by the firm to ensure that its own processes are as efficient as possible.

2.11 While the overall sequencing of the auction will broadly follow the structure outlined below, the precise timing and order of events will vary by case and may not align with the illustrative timeline. For example, timeframes will likely differ in cases where the bridge bank tool has already been used (Part 3 has more information on the bridge bank tool), where the Bank will seek to ensure there is appropriate competitive tension in any auction process to support advancement of the special resolution objectives.

• Counterparties are invited to participate in the bidding process and sign a non-disclosure agreement (NDA).
• Participating bidders are granted access to the data room to conduct preliminary due diligence and assess the feasibility and commercial viability of submitting an offer within the required timeframe.
• Bidders submit initial non-binding offers (NBOs) based on the information available in the data room, setting out pricing, transaction structure and any material conditions or dependencies.
• The Bank will evaluate the NBOs against the special resolution objectives. Selected bidders will be invited to participate in a second round.
• Shortlisted bidders will be requested to submit an updated binding offer.
• The Bank selects the preferred bid.
• The resolution instrument is published and transfer is executed.

2.12 The Bank anticipates that an auction will generally follow one of two approaches:

• A longer auction with two bidding rounds in which bidders first submit NBOs that can be negotiated and refined. Following this, a shortlist of acceptable bidders is then invited to submit final binding bids.
• A shorter auction with a single bidding round in which all bids are submitted by a fixed deadline and evaluated simultaneously. This enables the Bank to identify a preferred bidder swiftly while maintaining competitive tension within the shortened timeframe.

2.13 Establishing a well‑structured and comprehensive data room plays a critical role in ensuring an effective auction process and, ultimately, a successful transfer. It provides both the Bank and potential acquirers with the information they need to make timely, informed decisions. The breadth and quality of the data made available and, importantly, the firm’s ability to produce it quickly and accurately under pressure directly influence the success of any pursued transfer strategy at the point of failure.

2.14 For bidders, the data room should support their ability to conduct due diligence by supplying the information they need to assess the failing firm’s financial position, asset quality and organisational profile. However, the nature of a resolution means there will likely be significantly less time to scrutinise this during due diligence versus the usual timeframes anticipated in standard M&A transactions. This can impact bidders’ ability to evaluate risks, form a credible valuation or assess whether they can safely onboard the transferred business. Any constraints may reduce participation and undermine the effectiveness of the marketing process.

2.15 For the Bank, the data room offers insights into both the failing firm’s condition and each bidder’s capabilities. The information provided allows for an up-to-date valuation to be conducted, which informs the Bank’s view of what a reasonable bid may be. In addition, bidders’ interpretations of and requests for information can indicate their operational readiness, risk management capabilities and overall suitability to acquire the business. All of this information may inform the Bank’s subsequent assessment of any proposals.

2.16 The data room will typically contain a broad set of materials but its specific contents will vary according to the circumstances of the firm’s failure. The list below is intended to provide an illustrative example of what information may be requested.

Evaluating the bids

2.17 Following the conclusion of the auction process, the Bank will evaluate the binding offers received. This assessment will focus on the extent to which the bidder and their bid advance one or more of the special resolution objectives (of which there is no order of preference). Some of the considerations of how bids may further each special resolution objective are provided on an illustrative, non-exhaustive basis as follows:

To ensure the continuity of banking services and critical functions in the UK:

• Generally speaking, we are likely to prefer broader bids for a firm’s business over narrow bids, especially where a narrow bid does not include all of the banking services or functions that we want to continue. If the Bank uses the transfer strategy, the Bank’s preference is to facilitate a whole firm sale to a PSP. A complete transfer perimeter through share transfer could minimise operational execution risks associated with the sale, which may be increased in cases where bidders’ proposed transaction perimeters increase complexity regarding separability.
• Bids should demonstrate that a bidder can maintain operational continuity and support the failing firm’s critical functions and business lines immediately following the transfer.
• Bidders’ business models should be a compatible, strategic fit with the failing firm.

To protect and enhance the stability of the UK financial system:

• The bidder should be able to execute the transfer effectively and complete the transaction within the required timeframe, having regard to the capability of its board and senior management, its track record in executing M&A and business model compatibility. Bidders with strong financial resources and reputation are more likely to maintain both customer confidence in the transfer and broader trust in the financial system, thus minimising the risk of contagion.

To protect and enhance public confidence in the UK financial system’s stability:

• The extent to which a bidder holds, or can obtain, the necessary regulatory permissions for a timely transfer will impact ability to minimise depositor and creditor uncertainty, and any adverse perception of the transfer or resolution process.
• The bidder should demonstrate understanding of, and familiarity with, relevant UK regulatory requirements.

To protect public funds, including by minimising reliance on extraordinary public financial support:

• A bidder should have available financial resources and funding capabilities to meet existing funding gaps and any anticipated outflows.
• The Bank will have regard to the desirability for the purchaser to make appropriate contributions to the recapitalisation.

To protect depositors and investors to the extent that they have investments or deposits covered by the FSCS:

• The acquirer should have appropriate authorisations in place.

To protect, where relevant, client assets:

• The bidder’s proposed transaction perimeter should facilitate this, and the acquirer should have appropriate risk management practices and authorisations in place.

To avoid interfering with property rights, in contravention of the European Convention on Human Rights:

• The transfer should be executed in a lawful, proportionate and fair manner that pursues the best outcomes for existing shareholders and holders of regulatory capital instruments (and other non-excluded liabilities), while having regard to the special resolution objectives.

2.18 The Bank will also consider a range of additional factors, which may impact the special resolution objectives. These include, but are not limited to, the level of cash consideration offered (and the associated economic outcome for public funds, the UK financial system and the Bank), the absence of conditionality attached to the transaction, the likelihood of fulfilling any such conditions, and the bidder’s capacity to honour its offer and complete the transaction within the required timeframe. As part of the transfer, any competition, and any wider implications, of the bid, such as resilience and security implications, will be considered by the relevant authorities.

2.19 The Bank is open to bids from a range of credible parties and recognises that no single bidder is likely to be able to fully achieve all special resolution objectives. Instead, the focus is on identifying the option that best advances the special resolution objectives considering the circumstances, balancing factors such as greater deal certainty with more favourable economic outcomes. However, the Bank may, where reasonable, choose not to accept, review or consider any proposal or offer submitted and retains discretion over its final decision, subject to having regard to the special resolution objectives. The absence of a suitable bid would require the Bank to choose between placing the firm into insolvency or transferring some or all of the firm’s business to a bridge bank.

2.20 In considering the use of a bridge bank, the additional execution risk and risk to public funds of managing a bridge bank would inform our assessment on the most appropriate strategy to pursue to advance the special resolution objectives. The Bank will need to carefully consider the balance between the likelihood of more appropriate bids (for example, of higher cash consideration) being forthcoming where there is more time available for due diligence (if the Bank used the bridge bank tool), versus the possibility for increased risk to public funds that this alternative strategy may introduce.

Execution risks in a transfer to a PSP

2.21 A range of factors may impede the successful execution of a transfer. These challenges may stem from firm-specific obstacles, limitations faced by potential bidders or prevailing market conditions.

2.22 Incomplete information and difficulty in verifying data and answering bidders’ questions in the short period of time available to conduct due diligence may make it challenging to form an accurate assessment of risks. This can discourage bidders and reduce participation in the auction or lead to more conservative or conditional offers to reflect potential downside risk.

2.23 The bidder may also face operational challenges in executing the transfer. For example, continuity risks may arise where there is a mismatch between the bidder’s operating model and that of the failing firm. Where failing firms have developed continuity-related capabilities as set out in the RAF SoP, these may help to mitigate these risks. However, this cannot be relied upon for all firms where a transfer resolution strategy may be pursued at the point of failure.

2.24 Some of these challenges can be mitigated by the selection of an appropriate bidder with the right capabilities. For example, funding-related risks may be reduced by prioritising bidders with strong liquidity positions and diversified funding sources, while operational continuity risks can be mitigated by selecting an acquirer with the operational capability and experience to integrate the firm effectively.

2.25 It is hoped that the further transparency provided in this operational guide on how a transfer is executed, and the challenges that may be faced in doing so, will help to increase understanding of what bidders need to take into consideration during any bidding process.

2.26 Since the introduction of the recapitalisation payment mechanism, there is also the potential for the provision of funds if it is necessary to recapitalise the firm to achieve a transfer in pursuit of the special resolution objectives. For example, in a fast failure circumstance where there is very limited time for due diligence, it may be the case that a suitable acquirer can only be found if the recapitalisation payment mechanism is used (possibly in a contingent or deferred form), without which the Bank’s advancement of the special resolution objectives would be undermined. Further information on potential use of the recapitalisation payment mechanism is provided in Part 4.

3: Bridge bank operational guide

The use of the bridge bank tool

3.1 Where it has not proved possible to select a bidder or execute a transfer to an appropriate PSP, and it is deemed there is no alternative course of action that could be taken that would better advance one or more of the special resolution objectives at that point, the Bank may take temporary control of the failed firm or parts of it by transferring it to a bridge bank, with a view to a further transfer of the firm or its parts (Figure 5 outlines illustrative steps to execute a transfer).

3.2 As set out in the SRR CoP, the primary objective of a bridge bank is to maintain access to critical functions and facilitate the sale or transfer of the failing firm. A bridge bank is intended to be a short-term option, although the Bank may operate the bridge bank for up to two years, unless the Bank decides to extend (or further extend) it. The Bank can extend the period if it is satisfied that the extension meets one of the conditions in section 12(3D) of the Banking Act. Reasons for an extension under section 12(3D) may include that it would provide more time to execute an orderly transaction of a substantial part of the firm to a PSP, which may be driven by the need for regulatory approvals and due diligence to take place, or that the extension is necessary to ensure the continuity of essential banking or financial services.

3.3 The bridge bank can be sold in its entirety, or parts of the business can be sold to one or more PSPs. As noted in Part 1, if the sale is not conducted within this period, and the Bank does not extend its duration, the business would be wound down.

3.4 Where a transfer to a PSP is considered, preparations for a bridge bank will need to be sufficiently advanced during the contingency planning period.

3.5 Key actions must be carried out to ensure the bridge bank’s viability, including preparing to use the recapitalisation payment mechanism, preparing access to liquidity through the Resolution Liquidity Framework (RLF) and putting appropriate governance arrangements in place.

3.6 In line with the SRR CoP, the Bank would maintain oversight of the bridge bank, managing its relationship at arm’s length, but only insofar as the pursuance of bridge bank objectives is not compromised. Management at arm’s length may not be appropriate if the bridge entity is only operated for a short period of time, as intended and envisaged. The Bank may be more involved, where necessary, to advance the special resolution objectives and as supplemented by the bridge bank objectives.

Establishment of the bridge bank

3.7 Use of the bridge bank tool involves the transfer of shares or property, rights and liabilities to a subsidiary wholly or partially owned by the Bank (the Bridge Bank Holding Company (HoldCo)). Where the Bank uses share transfer powers, the HoldCo becomes the owner of the failed firm (the Bridge Bank Operating Company (OpCo)). Where the Bank uses property transfer powers, the Bank may consider establishing both a HoldCo and an operating company owned by the HoldCo, or transfer property directly to the HoldCo.^{footnote [8]}

3.8 There are many steps involved in establishing the bridge bank, including producing a set of key documents to formalise this arrangement such as the transfer instrument, framework document, articles of association and legal directions.

3.9 The transfer instrument will be made by the Bank (as resolution authority) using its statutory powers under the Banking Act. The Bank will determine the appropriate contents of the instrument, which will include the transaction perimeter and elements relating to whether the transfer involves shares or property. The instrument will also carry out the mandatory reduction, or bail-in, of some or all of the failed firm’s existing capital instruments to the extent required to advance one or more of the special resolution objectives.

3.10 To complement the transfer instrument, the Bank will establish arrangements in relation to the operation of the bridge bank. These include:

• Articles of Association: The Bank will produce legally binding articles of association of the HoldCo. These provide company regulations governing the relationship between the Bank (in its capacity as shareholder) and the directors of the company. These articles will be based on the model articles prescribed by the Secretary of State for a limited liability company, with modifications determined by the Bank as necessary or appropriate.
• Framework Document: A framework document is a non-legally binding acknowledgment by the Bank (in its capacity as shareholder), the HoldCo and the OpCo, or representatives of the parts of the firm that have been transferred to the HoldCo, which sets out the day-to-day relationship between the bridge bank parties, in practice. It is a formal expression of mutual understanding and intent, operating in light of the special resolution objectives and supplemented by the bridge bank objectives. It also provides a structured approach to the governance arrangements among the bridge bank parties.
• Operating strategy: The Bank must decide the operating strategy of the bridge bank, which will be case-specific and based on meeting the bridge bank objectives. The HoldCo’s business plan, which may be required for authorisation purposes, will focus on ensuring that the bridge bank achieves the bridge bank and special resolution objectives, in particular through operating on a conservative basis, preserving the franchise value of the business and providing continuity of critical services, as well as protecting public funds.
• Legal direction: The Bank can give formal legal directions to the OpCo’s executives and directors at the point of resolution. This could, for example, set out information demands from the Bank to the OpCo board and place other obligations on directors, and includes the power to remove members of management. The Bank has broad powers to direct management in resolution; sanctions can be imposed should such directions not be followed.

Governance arrangements

3.11 Certain of the Bank’s wider responsibilities beyond resolution intersect through its various roles when the bridge bank tool is used. As a result, the Bank needs to put in place arrangements to ensure that the bridge bank is appropriately managed and governed and to allow the Bank to effectively manage its involvement, given its capacity as central bank, resolution authority, lender of last resort and shareholder. These arrangements are also important to ensure the PRA’s ability to act as prudential regulator.

3.12 The governance arrangements are designed to ensure that the Bank manages its relationship with the bridge bank on an arm’s length basis, particularly in respect of day-to-day operations, with involvement focused at a strategic level. However, there are periods where the Bank’s role would be more active (for example, to ensure stabilisation and to execute a transfer to a PSP). The Bank will adapt the governance arrangements for the specific case, and these may evolve while a bridge bank is operated.

3.13 In addition to the Bank’s usual governance arrangements, there will be a number of bodies tasked with more direct involvement, while balancing continued operation on an arm’s length basis.

HoldCo board

3.14 The Bank will establish a board of directors for the HoldCo. The HoldCo board is expected to act in the interests of the Bank as the sole shareholder of the HoldCo, ensuring the special resolution objectives and bridge bank objectives are pursued as set out in the business plan. The expectation is that the HoldCo directors would act as investment managers with regard to the Bank’s ownership of the OpCo, with limited oversight of and involvement in the day-to-day operations of the firm. Directors of the HoldCo are likely to consist of senior employees of the Bank.

OpCo board (or management team)

3.15 The Bank will consider the composition of the OpCo board at all times, ensuring it remains appropriate. This will be considered and decided by the Bank on a case-by-case basis. The Bank will ensure it has the power to appoint additional directors and remove existing directors using the legal direction described above.

3.16 The Bank’s preference, where appropriate, would be to retain some of the previous management team of the failed firm or parts of it that have been transferred to the bridge bank. This management team will be required to support the Bank’s management of its relationship with the bridge bank on an arm’s length basis. Any arrangements in relation to the management of the transferred shares or property, rights and liabilities will depend on the specifics of the case.

3.17 Typically, an OpCo board will remain responsible for management of the OpCo’s day-to-day business activities. The OpCo board will retain their responsibilities in a bridge bank, overseeing the everyday running, viability and regulatory compliance of the firm.

3.18 The OpCo board will be expected to report to the HoldCo board and to share information with the HoldCo directors and the Bank to support oversight and decision-making. They are also expected to take actions in support of the special resolution and bridge bank objectives in accordance with the framework document.

3.19 The OpCo’s board members and senior managers performing Senior Management Functions under the Senior Managers Regime will continue to need to be approved persons. The OpCo board will be expected to develop remuneration packages for the OpCo directors and senior management, including appropriate annual targets and in light of annual budgets, and succession plans. However, the Bank will expect the OpCo board to involve the Bank in these decisions.

Bank representative

3.20 The Bank expects to appoint a ‘Bank representative’, who will play a central role in the management and operation of the bridge bank, and will likely be an employee of the Bank. This individual will lead the Bank’s oversight of the delivery of the special resolution and bridge bank objectives and manage the relationships between bridge bank parties.

Advisers

3.21 The Bank has considerable flexibility when determining whether to appoint external advisers and, if so, what they should be responsible for. This may include a statutory appointment of a resolution administrator. This allows the Bank to determine the most appropriate scope of the advisers’ objectives according to the specific circumstances and needs of the case. The Bank may appoint more than one adviser to perform various functions in respect of the bridge bank, and the advisers may be individuals or body corporates.

3.22 The advisers may be appointed to perform some or all of the following duties:

• advise the Bank on a range of matters relating to the bridge bank transfer transaction;
• work with the Bank and the OpCo to develop plans to stabilise the firm and maintain key operations;
• work with the OpCo on communications, continuity planning, crisis management, risk management, loss minimisation plans, service continuity, supplier contracts and staff retention;
• work on any restructuring required to meet the Bank’s objectives to return the OpCo to viability and private control; and
• support work to prepare for and execute an eventual sale (in the case of a transfer to a PSP).

3.23 The advisers are accountable to the Bank and will report to the Bank representative on day-to-day matters.

Authorisation

3.24 The Bank will work with the PRA and the FCA to ensure that there are appropriate authorisations in place, where necessary, to enable the bridge bank to continue to carry out the relevant regulated activities.

3.25 Where a share transfer takes place, there is a requirement under Part XII of the Financial Services and Markets Act 2000 (FSMA 2000) for a person to obtain approval from the relevant supervisory authority (the PRA or the FCA) prior to obtaining or increasing control in an entity, known as a change in control.^{footnote [9]}

3.26 The statutory procedure for obtaining an approval for a change in control includes a requirement for the person to submit a section 178 notice to the relevant supervisory authority.^{footnote [10]}

3.27 In conjunction with HMT, the Bank has considered the feasibility of undertaking a change in control notification and approval process where a bridge bank is used and timeframes are extremely compressed. It is possible for HMT to use their powers as set out in section 192 of FSMA 2000 and/or section 75 of the Banking Act to disapply the requirement for pre-notification of the PRA, generally in specified cases of acquisition of control. This would make provision in advance of firms failing that would only apply when the Bank is exercising the stabilisation power to establish a bridge bank.

Accounting treatment

3.28 The Bridge Bank HoldCo (and its subsidiaries) would not need to be consolidated into the Bank’s accounts.

4: Bank Resolution (Recapitalisation) Act 2025 – recapitalisation payment mechanism use cases

4.1 The BRRA 2025 provides enhancements to the existing resolution regime by introducing a new recapitalisation payment mechanism to allow the Bank to use funds from the banking sector, levied by the FSCS as the Deposit Guarantee Scheme (DGS) manager,^{footnote [11]} to cover certain costs associated with transferring a failing firm. This mechanism is comparable to DGS funded mechanisms used by some other resolution authorities.

Key features of the recapitalisation payment mechanism

4.2 The recapitalisation payment mechanism introduced by the BRRA 2025 amends the Banking Act and FSMA 2000 to:

• allow the Bank to require the FSCS to provide funds to recapitalise a failing firm;
• allow the FSCS to levy to recover these funds;
• allow the Bank to require the firm in resolution to issue new shares to facilitate the use of funds to meet the failing institution’s recapitalisation costs; and
• require the Bank to report to HMT and Parliament on the use of the recapitalisation payment mechanism.

4.3 The recapitalisation payment mechanism can only be deployed in connection with the exercise of a stabilisation power to achieve a transfer of all or part of the failing firm to a PSP or a bridge bank. The features of the recapitalisation payment mechanism broaden the scope of firms for which the Bank may consider pursuing a transfer strategy at the point of failure.

Recapitalisation payments

4.4 Prior to exercising its resolution powers, the Bank will need to assess whether one or more of the special resolution objectives would not be met to the same extent by the winding up of the firm. In circumstances where it is in the public interest, and a transfer further advances the special resolution outcomes versus an insolvency, the Bank may assess whether a recapitalisation payment is necessary. This will be informed by the required resolution valuation and an assessment of any shortfall amount. The Bank would first write down regulatory capital, and intend to write down, or otherwise expose, all other readily available MREL resources, if any, to loss before obtaining a recapitalisation payment from the FSCS. In certain circumstances, having regard to the special resolution objectives, it may be possible that other non-MREL liabilities that are eligible for bail-in could also be written down or converted to equity, as a precursor to a transfer.

4.5 This payment is based on the Bank’s calculation of the amount likely needed to recapitalise the firm (to balance its assets with its liabilities and restore capital adequacy) and cover any other resolution related expenses that the Bank or other relevant person (such as HMT, a bridge bank or an AMV) has or might incur in connection with the recapitalisation or use of the transfer tool.^{footnote [12]} Among other recapitalisation costs, these funds could be used for upfront capital injections or to cover contingent or deferred recapitalisation payments to help achieve a transfer of all or part of the firm to a PSP or a bridge bank to advance the special resolution objectives. The amendments to FSMA 2000 outlined in the BRRA 2025 provide powers for the Bank to require the failing firm to issue new shares to facilitate the recapitalisation. Further detail of assessment of auction bids against the special resolution objectives can be found in Part 2: Evaluating the bids.

4.6 The operational underpinnings that facilitate the provision of funds via the recapitalisation payment mechanism mirror the FSCS’ arrangements for a covered depositor payout in a modified insolvency. The FSCS will likely source the initial payment from its commercial borrowing facilities and then recover the funds by levying ex-post. If the amount required is higher than the limit on the commercial borrowing facility that the FSCS (as DGS scheme manager) has access to, and/or exceeds the amount that can be levied for, the FSCS would be able to request financial assistance from HMT, including potentially requesting to borrow from the National Loans Funds (which would be repaid using levies over time). Any financial assistance would be provided at HMT’s sole discretion. However, the design of the recapitalisation payment mechanism ensures that public funds remain protected as far as possible, while maintaining continuity of access to deposits for customers and preserving financial stability.

4.7 The amendments to FSMA 2000, as set out in the BRRA 2025, require the Bank to reimburse the FSCS for any funds provided to use the recapitalisation payment mechanism relating to a firm, which are not needed to cover the costs and expenses because:

• those costs and expenses were lower than the Bank expected; or
• there are recoveries from the sale or winding up of part or all of the failed firm.

Illustrative use cases

4.8 As noted in Part 2: Execution risks in a transfer to a PSP, there are a range of factors that may impede the successful execution of a transfer to a PSP, such as incomplete information in the data room, uncertain liabilities, issues with the acquirer’s financing and/or capabilities and adverse market conditions. The recapitalisation payment mechanism provides the Bank with additional flexibility which can help to address certain challenges, broadening the range of pursued resolution strategies available for smaller institutions and increasing the likelihood of achieving an orderly transfer without a reliance on public funds, therefore resulting in better advancement of the special resolution objectives.

4.9 If the Bank uses the transfer strategy, the Bank’s preference is to facilitate a whole firm sale to a PSP. This is based on the assumption that a whole firm sale is most likely to provide protection to public funds, while maintaining continuity of access to deposits and banking services for customers and preserving financial stability. However, the Bank recognises that this may not always be the case and it may not always be possible without further intervention. For example, if there is insufficient confidence that the failing firm is viable due to a capital shortfall, or if there are potential downside risks which cannot be adequately sized due to the potential acquirers having limited time to conduct full due diligence.

4.10 Use of the recapitalisation mechanism may help to mitigate some of these barriers. For example, an upfront capital injection could be used to strengthen a failing firm’s balance sheet and ensure that the firm is solvent and adequately capitalised, which may make it more likely to be attractive to a PSP. In this case, the capital could support stabilisation of the firm and provide the purchaser with confidence that the business is viable.

4.11 Alternatively, where there are significant barriers caused by the short timeframes within which due diligence around the acquisition must be conducted, a recapitalisation payment could be used to remove or reduce the possible risks to the acquirer which may be present. This could help to reduce uncertainty, increasing the likelihood that a whole firm transfer could be executed in short timeframes. Using the recapitalisation payment mechanism, the Bank has flexibility, if required, to provide deferred recapitalisation payments, possibly in the form of guarantees, to cover specific losses if certain pre-agreed conditions are met after the transfer has taken place. Any guarantee would be limited up to a pre-agreed amount.

4.12 Both of these use cases of the recapitalisation payment mechanism could broaden the pool of potential acquirers and increase the likelihood of a whole firm sale. An increased bidder pool size can also create competitive tension in the auction process and potentially improve the sale price, which in return could reduce the net cost to the FSCS and the funds required from the banking sector. Guarantees may further reduce the size of funds ultimately required, compared with an upfront capital injection, given the contingent nature of the payout. Use of the recapitalisation payment mechanism in these ways would likely increase complexity. Where acquirers seek arrangements such as these in their bids, any risks associated with these more complex arrangements would be considered when selecting the bid that best advances the special resolution objectives.

4.13 While there are benefits to the use of recapitalisation payments in certain circumstances, the Bank recognises that any actions taken must balance both the needs of the failing firm with those of the wider financial system. The Bank is mindful that funds made available through the new mechanism are drawn down from the wider industry and it is important for the Bank to be satisfied that any use of them is necessary in the public interest. In line with established safeguards, including those set out in the SRR CoP, the Bank will not utilise the new mechanism inappropriately to protect creditors from losses.

4.14 Irrespective of the idiosyncrasies of each case, the Bank will always endeavour to use funds in the most efficient and effective way possible. The decision to require a recapitalisation payment from the FSCS would be taken by the Bank, in consultation with the relevant authorities. The Bank would consider the relative costs of different options using a pre-resolution valuation and compare the likely outcomes of insolvency with transfer. Use of the recapitalisation payment mechanism will always be situation specific, and the Bank will work with advisers to assess bids and consider the most appropriate structure and use of funds to facilitate each transaction to best advance the special resolution objectives.

Abbreviations and glossary

Asset management vehicle (AMV) – A resolution tool that allows property, rights and liabilities of a failing firm to be transferred to a separate entity controlled by the Bank with the objective of maximising their value through sale or orderly wind down.

Bail-in – A resolution tool that enables shares, debt and other liabilities of a firm to be written down or converted to absorb losses and recapitalise the firm.

Bank administration procedure (BAP) – A modified insolvency procedure for the part of a failed firm not transferred in resolution. It prioritises maintaining a failed firm’s services to support the transferred business.

Banking Act 2009 (the Banking Act) – Domestic legislation that established the UK’s resolution regime and sets out the responsibilities and powers of the Bank as UK resolution authority.

Bank Resolution (Recapitalisation) Act 2025 (BRRA 2025) – An Act that amends existing domestic legislation to establish the Bank’s ability to require the Financial Services Compensation Scheme to provide funds to make recapitalisation payments in respect of certain costs associated with actions taken in resolving failing firms.

Bridge bank – An entity set up and controlled by the Bank. It acquires a failed firm’s critical functions temporarily, until an onward sale can be completed or, if that is not possible, its assets wound down and liabilities discharged.

Critical functions – Activities (such as deposit-taking and lending) that some firms provide, which would lead to an impact on the real economy if they immediately stopped.

Financial Conduct Authority (FCA) – The UK’s financial services conduct regulator.

Financial Services Compensation Scheme (FSCS) – The UK’s Deposit Guarantee Scheme.

Guarantee – A type of contingent recapitalisation payment that could be used by the Bank in the transfer of a firm to a private sector purchaser.

His Majesty’s Treasury (HMT) – The UK government’s economic and finance ministry.

Host authority – A resolution authority in a jurisdiction in which the firm provides services through one or more subsidiaries or branches.

Minimum requirement for own funds and eligible liabilities (MREL) – A requirement for a firm to maintain a minimum amount of equity and liabilities which meet certain criteria so that, if a firm fails, losses can be absorbed and the resolution authority can implement the resolution strategy.

Modified insolvency procedure – A procedure for banks or building societies that prioritises the rapid payout or transfer of insured deposits.

National Loans Fund – The central government’s main borrowing and lending account, administered by HMT with bank accounts maintained at the Bank.

Property transfer – A transfer resolution strategy which involves transferring property, rights or liabilities of a specified firm.

Prudential Regulation Authority (PRA) – The UK’s financial services prudential regulator.

Public interest test – An assessment made by the Bank, in consultation with HMT and a failing firm’s supervisors, to determine whether it is necessary for the Bank to use resolution powers to advance one or more of the special resolution objectives.

Resolution Liquidity Framework (RLF) – A flexible framework to lend to firms where the entity is in a Bank-led resolution.

Resolution powers/tools – The Banking Act gives the Bank a number of statutory powers to resolve a firm. These include the bail-in and transfer tools.

Resolution Procurement Framework – The Bank’s framework to appoint advisers to support work on resolution planning in business as usual and where a regulated entity is under stress. The Bank may seek advisory support to deliver a resolution (eg resolution valuations or insolvency practitioner support).

Resolution strategy – The Bank identifies firm-specific preferred resolution strategies, which indicate the Bank’s intended approach to resolution (ie bail-in, transfer, modified insolvency).

Resolvability Assessment Framework (RAF) – The Bank’s and PRA’s approach to assessing whether firms operating in the UK with bail-in or transfer as their preferred resolution strategy are prepared for resolution.

Share transfer – A transfer resolution strategy which involves transferring securities issued by the specified firm.

Special resolution objectives – Seven objectives set out in the Banking Act which the relevant authorities, including the Bank, must have regard to in using, or considering the use of: stabilisation powers; the bank insolvency procedure; or the bank administration procedure. The objectives are to be balanced as appropriate in each case.

Special Resolution Regime (SRR) – A regime which seeks to address the situation where all or part of the business of a firm has encountered, or is likely to encounter, financial difficulties.

Statement of Policy (SoP) – A formal document in which the Bank details its policy on a particular matter. Statements of Policy usually set out the Bank’s approach to exercising powers conferred by FSMA 2000 and/or the Banking Act. They do not contain the PRA’s expectations for how a firm should act, which are set out in supervisory statements.

Transfer – A resolution power that transfers part or all of a failing firm to a purchaser or, temporarily, to a bridge bank.

Annexes