LONDON, July 12 (Reuters) - The Bank of England will toughen up rules for winding down struggling banks, such as the British arm of Silicon Valley Bank which failed in March, rather than raise deposit protection limits, Bank of England Governor Andrew Bailey said.
The collapse of SVB in the United States earlier this year, after a flight of depositors, forced Britain to engineer a sale of its UK subsidiary to HSBC.
It raised questions about whether depositor protection levels in Britain, which are pegged at 85,000 pounds ($109,845) per account, are sufficient, particularly in an age when bank runs can be accelerated by social media.
Bailey said the BoE's focus will be on ensuring banks can be wound down smoothly by moving deposits to a solvent lender and avoiding the need to tap deposit insurance.
"The answer is not to raise the 85,000 (pounds) limit in this case. In a way, that was one of the lessons from Silicon Valley UK," Bailey told a press conference on Wednesday.
"If we put it up from 85,000 to some other number that's larger than 85,000 - that doesn't really do it. So we are looking more broadly at the resolution toolkit," Bailey said.
The BoE and Britain's finance ministry are studying further resolution options to improve continuity of access to deposits.
SVB's UK arm was classed as a subsidiary, making it easier to tackle than if it had been a branch supervised from abroad.
London is home to scores of foreign bank branches and the BoE is set to review the thresholds for converting a foreign branch into a subsidiary that has its own capital and liquidity, a costly undertaking for banks.
"Of course we're doing the lessons learned. It doesn't mean that we're about to enact some radical change to the subsidiarisation policy," Bailey said.
A resolution framework was introduced after taxpayers had to bail out lenders during the global financial crisis of 2008 in attempt to stop banks from becoming "too big to fail".
Critics say that framework has been thrown into doubt after Swiss authorities forced a takeover of ailing Credit Suisse by UBS earlier this year, rather than closing it down.
Bailey said Credit Suisse did not follow the "playbook", which led to doubts among investors about the resolution plans for big global banks more broadly, a serious issue.
"We can't live with a world where there's ambiguity. That's just not acceptable, the risk is much too great," he said, adding the Financial Stability Board representing bank regulators around the world was studying the matter.
But Bailey said he was unconvinced that Credit Suisse had undermined resolution plans of global banks.
"I am very convinced we have to kick its tires and test it thoroughly to decide whether these plans are still fit for purpose or whether we need to go back to them and change them," he said. "This is far too important to sweep under the carpet." ($1 = 0.7738 pounds) (Additional reporting by William Schomberg and Suban Abdulla; writing by Andy Bruce and Huw Jones; editing by Christina Fincher)
