(Bloomberg) -- The Bank of England is drawing up plans to recapitalize failing banks through the industry’s deposit protection program under reforms designed to address shortcomings exposed by the collapse of Silicon Valley Bank earlier this year.

The proposal, which would overhaul the BOE’s resolution regime, would see funds from the industry-backed Financial Services Compensation Scheme used to strengthen the books of foundering lenders, a person familiar with the deliberations said, asking not to be named discussing internal matters.

Once a troubled bank is deemed technically solvent, the BOE would be able to provide liquidity through its standard facilities to give customers immediate access to their cash during the resolution process, while also reducing the risk of taxpayer losses.

The arrangement is said to be the centerpiece of the planned reforms, coming in the aftermath of HSBC Holdings Plc’s rescue of SVB’s local unit over a frantic weekend in early March. Although the move was a success, it exposed flaws in the current system, particularly around business continuity for clients.

In March, the BOE planned to put SVB UK into insolvency and run it down, but doing so would have left corporate clients unable to access billions of pounds of their deposits for working finance and payroll. 

Uninsured depositors can be made to wait months to access their money in an insolvency as assets are sold and recoveries made. Even fully insured depositors, who hold as much as £85,000, have to wait a week for their money.

Read More: HSBC Buys SVB’s UK Unit for £1 in Reprieve for Tech Sector

All but £155 million ($192 million) of the £6.7 billion in deposits at Silicon Valley Bank UK were uninsured when the BOE took control of the lender in early March. 

BOE Governor Andrew Bailey discussed the plans with Chancellor of the Exchequer Jeremy Hunt in recent days, the Financial Times reported earlier. Both are scheduled to meet again on Tuesday, the person said. The BOE and the Treasury declined to comment.

However, it isn’t clear yet if authorities would require the FSCS be pre-funded, similar to an arrangement at the Federal Deposit Insurance Corp. in the US. Currently, the UK deposit protection program is part-financed by the private sector but the bulk of the risk is initially borne by the taxpayer and repaid over time by the industry.

In April, Bloomberg News reported that the proposed overhaul of the system was aimed at speeding up payouts to customers when a bank is placed into resolution, shielding taxpayers from losses. The BOE wants to shorten the delay to hours from weeks.

Read More: UK Weighs Reform of Uninsured Bank Deposits After SVB Collapse

Bailey said in April that regulators need to look again at how much protection they extend to depositors at smaller banks, one of the key lessons he said should be learned from this year’s crisis in the financial system. 

Though he said UK lenders are well capitalized and ruled out a wider systemic banking crisis, he added that the collapse of Silicon Valley Bank indicated a shortfall in the depositor protection program for smaller institutions.

--With assistance from William Shaw.

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