BoE Acts On SVB Lessons: Stricter Rules For Foreign Banks With UK Deposits

The Bank of England has announced a tightening of regulatory standards for foreign bank branches operating in the UK, targeting those that hold large-value deposits from domestic customers. The move follows lessons drawn from the 2023 collapse of Silicon Valley Bank (SVB), which exposed significant gaps in how foreign institutions operating under branch status are supervised.

These new measures aim to plug a regulatory blind spot and reduce systemic vulnerabilities associated with foreign banks that take sizeable UK deposits without being fully subject to domestic prudential oversight.

Regulatory Gaps Exposed by the SVB Collapse

The collapse of SVB in the United States in March 2023 triggered a brief but intense episode of financial instability. Its UK arm, SVB UK, faced a liquidity crisis that was narrowly averted after emergency intervention and an expedited acquisition by HSBC. While SVB UK was a UK-incorporated entity regulated by the Prudential Regulation Authority (PRA), the broader event brought renewed attention to other foreign banks operating in the UK under lighter-touch branch arrangements.

Under the current framework, many foreign banks are permitted to operate in the UK as branches rather than full subsidiaries. These branches, particularly those from non-European jurisdictions, are not subject to the full set of UK liquidity and capital requirements. In practice, this means that even if such institutions hold hundreds of millions in UK deposits, their financial health is supervised primarily by their home country regulator.

SVB’s failure highlighted the potential systemic risk that arises when a foreign branch with a large UK footprint becomes unstable and the host authorities lack full visibility or intervention powers.

What the BoE Is Changing

The Bank of England, through the PRA, has now issued a set of reforms designed to reduce these vulnerabilities. The new rules will require foreign bank branches holding high levels of UK deposits to comply with enhanced prudential standards.

Key measures include:

• Stricter liquidity and capital standards for branches with material retail or corporate deposit-taking activity in the UK.

• Mandatory reporting of intragroup exposures, liquidity risk positions, and operational dependencies on the parent entity.

• A new threshold regime, under which branches with over £500 million in UK client deposits must undergo a review to determine whether their operations should be required to become a separately capitalised subsidiary.

The BoE has stated that these rules are targeted and proportionate. Foreign branches engaged only in wholesale market activities with limited UK depositor exposure will not be materially affected. However, the PRA will conduct ongoing reviews to assess deposit concentration risk and interbank dependencies.

The new requirements will be phased in over 12 to 18 months to allow affected institutions time to adjust operations and reporting systems.

Operational and Strategic Impact

Several large foreign banks—including institutions from the US, Switzerland, and Asia—will likely be affected by the change. Many of these operate under a branch model that allows them to avoid the heavier capital and governance requirements imposed on fully incorporated subsidiaries.

Banks that fall under the new thresholds will now need to reconsider whether their current structure is viable. One expected outcome is a shift toward subsidiarisation, where banks voluntarily convert their UK branches into separately capitalised and locally governed subsidiaries. While this move would increase operational costs and compliance burdens, it would also provide reputational benefits and reduce host-country regulatory friction.

Industry groups have reacted cautiously. The Association for Foreign Banks (AFB) acknowledged the need for reform but has called for “clear, risk-sensitive thresholds and predictable implementation timelines.” Some institutions have also expressed concern about potential duplication of home and host supervision requirements.

A Global Trend Toward Cross-Border Prudential Tightening

The BoE’s move aligns with a wider global recalibration of banking oversight following the SVB crisis. In the United States, regulators are reviewing mid-sized bank capital frameworks, while the European Union has accelerated plans to reinforce controls over third-country branches operating in the single market.

There is increasing consensus among financial regulators that international banking operations—especially those involving large domestic deposit bases—should not fall through the cracks of fragmented supervision. The BoE’s action places the UK among the jurisdictions leading this effort, balancing openness with accountability.

This development is also consistent with the Financial Stability Board’s 2024 recommendations, which emphasized the need for host regulators to have stronger tools when foreign institutions pose domestic risks.

Reinforcing the BoE’s Prudential Agenda

The new framework fits into the BoE’s broader post-Brexit supervisory strategy. As the UK diverges incrementally from the EU rulebook, it is refining its approach to ensure financial stability while maintaining a competitive environment for international finance.

BoE Deputy Governor for Prudential Regulation Sam Woods commented, “We are committed to maintaining the UK’s position as a global financial hub, but that must go hand-in-hand with robust protections for depositors and systemic integrity. The failure of SVB showed us how quickly risk can travel across borders. This is about staying ahead of those risks.”

This statement underscores the regulatory shift underway: no matter how global a bank may be, if it holds substantial UK liabilities, it must meet UK standards.

Conclusion

By tightening the rules for foreign bank branches with high-value UK deposits, the Bank of England is closing a critical regulatory gap exposed by the collapse of Silicon Valley Bank. The move enhances the resilience of the UK financial system and signals that the BoE expects all deposit-taking institutions—regardless of their origin—to operate under clear, enforceable standards.

While foreign institutions will need to adapt to a more demanding supervisory landscape, the long-term benefit is greater stability and predictability for UK customers and financial markets. The BoE’s message is unambiguous: systemic oversight must match the scale of domestic exposure, regardless of a bank’s passport.

Author: Gerardine Lucero