From Standard & Poor's (old hat for any regular readers of your correspondent over the years):
At the height of the banking crisis in 2008, the U.K. government provided widespread support to its banking system, directly and via the country's monetary authorities. Where individual banks were at risk of failure, the government supported what it considered to be the most systemically important ones, such as Lloyds Banking Group PLC and The Royal Bank of Scotland Group PLC. It let others that it did not consider vital to the system fail like London Scottish Bank, while protecting their insured depositors.
The government has stated that it wants to avoid putting taxpayers' money behind failing banks in the future, even though the monetary authorities now have a bigger toolkit for providing liquidity support to the system. Via the resolution powers established under the Banking Act 2009, it already has some of the tools it needs. The government now intends to go further, for example legislating for structural changes in line with those that the Independent Commission on Banking (ICB) has recently proposed. If adopted, they could make it increasingly unlikely that the government would need to support a failing systemic U.K. bank in the future.
The U.K. government has stated that it wants to avoid providing support to failing banks in the future. However, in our opinion, the U.K. government cannot yet walk away from systemically important banks without running the risk of wider systemic contagion. We therefore continue to factor notches for the likelihood of extraordinary government support in a crisis into our ratings on systemically important U.K. banks. We don't expect to remove them within the two-year horizon of our outlooks on long-term ratings, but we could do so in later years. Standard & Poor's Ratings Services continues to factor notches for the likelihood of extraordinary government support in a crisis into its ratings on systemically important U.K. banks and, as a general rule, their overseas subsidiaries. This is because we believe that in practice the government cannot yet walk away from these institutions without risking a failure of one bank spreading across the system, disrupting the supply of credit to households and businesses.
But that situation may change as a result of the legislative initiatives under consideration, and with it our position about government support. We do not expect to remove the notches for government support for systemically important U.K. banks within the two-year horizon of our outlooks on long-term ratings, but we could do so in later years. The changes afoot in the U.K. banking system may also carry broader medium-to-long-term implications for our ratings on banks in the U.K.
