Understand the practical steps, key instruments and timelines the Bank of England may follow when executing a bail-in
The Bank of England acts as the UK’s resolution authority for certain banks and building societies, with the statutory power to use bail-in under the Banking Act 2009. This guide explains, in practical terms, how a bail-in could be run operationally: the preparatory work, the legal instruments that create interim rights for creditors, and the steps that lead from placing a firm into resolution to returning it to private control.
It also highlights the key participants such as the Bail-in Administrator (BiA), the Allocation Adviser, and settlement systems like CSDs and ICSDs.
Although the bail-in tool was introduced in 2013 and, at the time of publication, had not been used by the Bank, it remains a central part of the UK’s toolkit for preserving financial stability while protecting public funds.
The document was updated in 2026 to clarify interim rights and share delivery mechanics. Throughout this summary, technical terms are emphasised and specific concepts are defined: for example, interim rights are temporary legal claims created to stand in for final compensation until valuations and allocations are completed.
How bail-in converts losses into recapitalisation
At its core, bail-in enables a failing firm to be recapitalised by imposing losses on shareholders and selected unsecured creditors, rather than relying on taxpayer support. The Bank typically calibrates a firm’s MREL (the minimum requirement for own funds and eligible liabilities) so that a pre-defined pool of resources is available to absorb losses and restore regulatory capital ratios. For the largest, systemically important banks, a bail-in resolution strategy is often the preferred approach and such firms must therefore hold additional loss-absorbing resources. The Bank must respect the statutory order of loss absorption and the no creditor worse off safeguard, which ensures creditors receive no less than they would in an insolvency.
Preparing for resolution and operational planning
Contingency planning starts well in advance. The Bank aims, where practicable, to allow time to plan (often targeting around three months), but the actual window will vary with the situation. Preparatory actions include appointing an independent valuer to produce the valuations that will inform decisions, compiling detailed information about instruments (ISINs, governing law, listings, denominations, and creditor ranking), and lining up third-party service providers such as registrars, custodians and a potential Depositary. The Bank also coordinates confidentially with market infrastructures and, where relevant, host resolution authorities. A central element of planning is deciding how to create interim rights for affected creditors — typically either tradeable Certificates of Entitlement (CEs) or non-transferable Potential Rights to Onward Property or Proceeds (PROPPs).
Certificates of Entitlement and PROPPs
The Bank may issue CEs that sit in CSD/ICSD accounts and can be traded for a short period, or create PROPPs, which are contingent beneficial interests that are not represented in a clearing system and are not tradable. CEs typically have a nominal denomination (for example £1) and are grouped into classes reflecting creditor ranking (eg CET1, AT1, Tier 2, other eligible liabilities). PROPPs were designed to address operational constraints and securities law considerations in some jurisdictions. Both approaches require coordination with clearing systems and may entail appointing an Allocation Adviser to manage issuance and later the allocation of shares or proceeds.
Valuation, legal instruments and the resolution weekend
The Bank will make a Bail-in Resolution Instrument when it places a firm into resolution; this instrument identifies the liabilities to be affected and creates interim rights. The exercise of stabilisation powers is informed by an independent valuation process (including what the Bank refers to as Valuation 2), which may be provisional if urgency demands. The Bank can opt for immediate write-downs, a deferred bail-in with later quantification, or combinations tailored to the case. Actions such as suspending trading and immobilising settlement in affected securities are implemented rapidly — often during the so-called resolution weekend — to limit market disruption and establish clear beneficiary records at the Resolution Time.
The bail-in period, allocation and exit
After entry into resolution, the bail-in period covers the time needed to finalise valuations, approve a business reorganisation plan, and determine Allocation Ratios that translate interim rights into shares or cash. The Bank anticipates this phase might typically last up to six months but will extend if necessary. During the Allocation Period, beneficiaries may receive direct delivery of shares into their accounts or be required to submit a Statement of Beneficial Ownership (SBO) to confirm eligibility and provide necessary certifications for legal and operational purposes. The Bank uses Bail-in Supplemental Resolution Instruments to announce the allocation terms and Bail-in Onward Transfer Instruments to effect the transfers to beneficiaries.
Special cases and exit mechanics
Some categories of liabilities—such as FSCS-covered deposits, client assets and certain settlement system exposures—are excluded from bail-in by law, and building societies may need demutualisation to convert member rights into share capital as part of a bail-in. At the close of the process, once shares or net proceeds have been transferred and the BiA steps back, voting rights and management pass to the new owners and the firm returns to private sector control, with residual restructuring supervised by the PRA. Throughout, the Bank retains discretion to adapt its approach to the facts of each case and to work with HM Treasury and other authorities where public funds might be implicated.
