Bank of England (BOE) issued a new set of regulations, as per which, investors will pay funds required to bailout troubled lenders, instead of the taxpayer footing the bill.

Known as "The EU Bank Recovery and Resolution Directive (BRRD)," the new bailout rule aims to avoid the burden of heavy inflow of capital into the banks from government exchequer.

As per the new law proposed by the BOE, all investors including shareholders, bondholders as well as depositors money will be turned into equity if the bank goes bust.

The banking regulator said that the investors in banks will have to clearly understand that they will save the failing lenders without taxpayers’ support. Depositors will be the worst vulnerable; however, they would still be guaranteed up to a level of £85,000 each.

In accordance with the new proposals, new securities contracts will specify their position in this hierarchy, from 1 January 2015.

The Prudential Regulation Authority CEO and prudential regulation deputy governor Andrew Bailey said: "The UK authorities have taken a number of important steps since the crisis to increase the resilience of our banking sector, including stress testing the major banks and strengthening the capital framework."

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

"The BRRD provides a framework and tools to deal with banks in distress and builds on the steps we have already taken to ensure firms have recovery and resolution plans that minimise disruption to the wider financial system."

These proposed rules will be applicable to banks, building societies and investment firms, as well as the holding companies of these firms.

The PRA’s consultation closes on 19 September with the final rules to be published by 31 December.