MP Urges Regulators to Act as Polymarket Takes Bets on HSBC and Lloyds Failing

Polymarket's offshore exchange lists contracts on whether 19 of the world's biggest banks, HSBC and Lloyds among them, will fail by the end of 2026. The sums are small, but a Treasury Committee MP warns that a market on a bank's collapse could help cause one, and Britain's regulators have so far said little more than that they are talking to their counterparts abroad.

• Polymarket's market "Which banks will fail by end of 2026?", open since 8 April, had traded $78,911 across 19 banks by 5 October, including $9,168 on Lloyds and $2,023 on HSBC, with both priced at roughly 2% to 3% for failure
• Liberal Democrat MP Bobby Dean, a member of the Treasury Committee, told The Guardian that bank markets could be exploited to "aggravate real shifts in market sentiment" and "could even trigger bank runs", and urged UK regulators to raise the issue with their US counterparts
• The Financial Conduct Authority said it had been speaking to international regulators about prediction markets to protect "market integrity"; Lloyds and HSBC declined to comment and the Treasury did not respond, The Guardian reported
• UK users cannot open positions on Polymarket under its own geographic rules, and the Gambling Commission has said an unlicensed prediction market must not transact with people in Great Britain
• The contracts follow ESMA's finding last month that prediction markets are "rife with inside trading", and an earlier Polymarket series on bank failures by 30 June that traded $591,132

A Market on Bank Failure Moves From Washington to Westminster

Polymarket is taking positions on whether HSBC and Lloyds Banking Group will fail, and a member of the House of Commons Treasury Committee wants British regulators to do something about it. The Guardian reported on Saturday that the offshore prediction market had allowed $77,507 (£58,530) of positions on whether some of the world's largest banks would go under by the end of the year. Bobby Dean, the Liberal Democrat MP for Carshalton and Wallington, told the paper that "Polymarket has a poor reputation for stopping insider trading or bad actors placing bets on their platform, so it's easy to see how it could be exploited to try to aggravate real shifts in market sentiment."

"If the bank-related activity grows on the platform and then a particular market was to escalate rapidly, it could even trigger bank runs," Dean said. "I would urge our regulators to get in contact with their counterparts in the US to raise concerns. We should not turn a blind eye to the risks because they are relatively small today, we've all seen how quickly things can move in this sector."

The Financial Conduct Authority (FCA) told The Guardian it had been speaking to international regulators about prediction markets as part of its work to protect "market integrity". The Bank of England said its supervisors engage regularly with firms on market developments and emerging risks. Lloyds and HSBC declined to comment, and the Treasury did not respond.

What the Contracts Say

The market sits on Polymarket's offshore, blockchain-based exchange, not on the US exchange the company runs under Commodity Futures Trading Commission oversight. Created on 8 April, it lists 19 US, Canadian and European banks, from JPMorgan Chase and Deutsche Bank to Santander and BNP Paribas. By Monday morning total volume had reached $78,911, according to Polymarket's own market data. Truist ($10,432), Deutsche Bank ($10,290) and KeyBank ($9,599) have drawn the most; Lloyds has drawn $9,168 and HSBC $2,023. Every bank's "Yes" contract was quoted at between about 1% and 4%.

A bank "fails" if, by 31 December 2026, its regulator declares it non-viable or withdraws its licence in a way that leads to resolution; it enters liquidation or a resolution regime, including a bail-in or a bridge bank; the state wipes out its shareholders and takes control; or its regulator orders a merger "due to the bank's financial condition or to prevent failure". The bank's regulator is the primary resolution source, but "a consensus of credible reporting may also be used".

This is not the first such market. An earlier series on failures by 30 June traded $591,132 before every bank resolved "No", according to Polymarket's data; HSBC drew $48,245 of that. Polymarket also listed bank-failure markets in March 2023, during the collapse of Silicon Valley Bank.

Polymarket Defends the Markets; US Regulators Have Already Objected

Polymarket's chief legal officer, Neal Kumar, told The Guardian that "the information in these markets is already public. Banks, hedge funds and credit professionals have had access to credit default swap markets for years. You shouldn't need to work at an institution like that to have access to information on a topic of this importance like bank failures."

The UK concern follows American objections. Bloomberg reported on 25 September that officials at the Federal Deposit Insurance Corporation (FDIC) had questioned whether the contracts served any legitimate commercial or investment purpose, and that Senator Elizabeth Warren and former FDIC chair Sheila Bair had criticised them. Polymarket's CFTC-regulated US exchange does not offer bank-failure contracts, and Kalshi does not list contracts on individual banks failing, according to Bloomberg. In Europe, ESMA said in September that manipulation and insider trading risks "reach new levels" on DLT-based platforms such as Polymarket, "where the platform itself may not know who is behind a given wager".

The Volumes Are Small, but the Incentive Runs the Wrong Way

A market on a football result cannot change the score. A market on a bank's failure is different, because a bank survives on confidence, and confidence is what a widely shared price can erode. That is Dean's point: a holder of a large "Yes" position has a reason to spread fear, and a sharp move in a thin market produces a screenshot that looks like information. The 2023 failures of Silicon Valley Bank and Credit Suisse showed how fast deposits leave when worry spreads online. The counterweight is scale: $2,023 of trading on HSBC will not change anyone's view of a bank of its size, and none of the banks in the June series failed. But the less money in a market, the cheaper its price is to move. The risk is not that Polymarket predicts a run. It is that, in a period of genuine stress, its prices could be used to amplify one.

Britain Has Already Called This Gambling, Which Narrows Its Options

The UK's legal position is clearer than the call for action implies. In February the Gambling Commission said prediction markets would appear to be betting intermediaries under British law, that an operator launching here could not classify itself as non-gambling, and that unlicensed operators "should take steps to ensure they are not targeting or transacting with consumers in Great Britain". The gambling minister, Baroness Twycross, told the House of Lords the same month that any prediction market would need a Commission licence. Polymarket's own rules list the United Kingdom as close-only. None of this reaches the market itself, which is offshore and open to users in many other countries. What UK regulators control is the other end: market abuse rules already cover spreading false or misleading information about listed shares such as HSBC's and Lloyds', and the FCA has barred binary options from sale to retail consumers since 2019. Dean is, in effect, asking London to press regulators in the United States, where Polymarket is based, over a product its own US exchange does not offer.

The Credit Default Swap Comparison Does Not Hold

Kumar's defence is that credit default swaps have let institutions bet on bank failures for years. Credit default swaps, though, are traded between identified counterparties, reported, collateralised and supervised, and many buyers hold them to hedge real exposure to the bank. Polymarket's offshore contracts trade through crypto wallets that ESMA says the platform may not be able to link to a person, by users who need hold no exposure at all. The information argument is also strongest when a market is deep: a contract that has drawn $2,023 in six months aggregates very little. The industry's standard defence, that prices are information, is hardest to make for the contracts where the cost of being wrong falls on depositors rather than traders.

The money at stake on HSBC and Lloyds is trivial. The question Dean has raised is not, and it lands as Polymarket is lobbying London and Brussels to have its contracts treated as finance rather than gambling.