HSBC and Standard Chartered must address "shortcomings" in their plans to continue to provide "vital banking services" to customers and avoid costs to taxpayers if either bank were to fail in a future financial crisis, the Bank of England has found.

The central bank said HSBC and Standard Chartered, which are both based in London but count Hong Kong as their biggest market, need to address issues surrounding their ability to have adequate financial resources on hand - namely how they identify and project collateral balances available - and to quickly restructure in the event of a bank failure.

"Safely resolving a large bank will always be a complex challenge so it's important that both we and the major banks continue to prioritise work on this issue," Dave Ramsden, the Bank of England's deputy governor for markets and banking, said in a statement.

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On Friday, the Bank of England announced the results of its examination of the resolution plans of eight of Britain's biggest banks in its first assessment of whether they could avoid a future "too big to fail" situation. The resolution plan was part of a series of measures adopted by the central bank in 2019 in preparation for a future financial crisis.

In its review, the central bank found three lenders had "shortcomings" in their plans and four others needed to make "enhancements" to their preparedness strategy. Spanish banking giant Santander's United Kingdom business was the only lender to not have any additional recommendations.

Overall, the Bank of England concluded that a major bank could fail safely, remaining open to customers with shareholders and investors to be the first in line to bear the costs, rather than taxpayers.

HSBC, one of Hong Kong's three currency issuing banks alongside Standard Chartered, said it would need to take steps to enhance its ability to conduct "deep restructuring actions" across its international network, which spans 64 markets globally.

"The changes that would be required to this infrastructure to support certain restructuring actions, which may be needed in resolution, would be complex," the bank said.

A woman withdraws cash from an ATM at HSBC headquarters in Central. Photo: Xiaomei Chen alt=A woman withdraws cash from an ATM at HSBC headquarters in Central. Photo: Xiaomei Chen>

HSBC said it was assessing preparatory actions needed for a "timely and orderly restructuring" in the event of a bank failure and those actions would potentially be executed over a "multi-year period". The bank also is examining its resolution-specific liquidity reporting and forecasting.

The Bank of England's review comes as HSBC's largest shareholder, Ping An Insurance Group, has called for a "debate" on shaking up the bank, including potentially spinning off its Asian business.

HSBC has brought in independent advisers to review its operations to see if there are potential avenues to unlock further value, but a break-up is unlikely.

As part of its efforts to address issues raised by the Bank of England, Standard Chartered said it was enhancing its liquidity analysis tool for longer term forecasts and expects to complete the work by the end of March 2023.

"The group has devoted substantial resources to its multi-year effort to become resolvable," the bank said. "The focus has been on building sustainable, long-term capabilities that are embedded in the group's infrastructure, processes and management structures."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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