British banks will be given until 2022 to ensure they have sufficient funds set aside in order to avoid resorting to a taxpayer-funded bailout if they go under, the Bank of England (BoE) said on Tuesday (8 November).
The decision comes at the end of a year-long consultation aimed at putting rules in place to avoid a repeat of the 2008 bailout, which saw Lloyds and Royal Bank of Scotland rescued by taxpayers to the tune of a combined £115bn ($142.9bn).
The new plan, is not as strict as the one Britain's central bank first put forward, which recommended applying the rule to all banks with more than 40,000 accounts.
Only banks with more than 80,000 accounts will instead come under the scope of the new rule and those affected will have two extra years to comply.
"This policy is a significant milestone on the journey to end 'too big to fail' in the UK," BoE Governor Mark Carney said. "[It] will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds."
The 400 lenders and building societies affected by the rule will have to hold a combined £223bn buffer of loss-absorbing bonds, which could be written down to top up capital reserves in the event of a financial crash.
The measure is aimed at giving banks time to implement a restructuring plan or to allow regulators to gradually wind down a lender's operations, thereby avoiding the turmoil sparked by the Lehman Brothers' collapse eight years ago.
The Bank added that banks will be set interim targets, which will then be reviewed in 2020 to see whether Britain's vote in favour of leaving the European Union has had an impact on the sector.