As my colleague Andrew Bailey from the Bank of England has rightly criticised, the call for ever-higher capital provisions neglects that there are other ways to successfully protect financial stability.I refer to the rules that are designed to make banks resolvable without systemic disruption. Such reconstruction is sometimes so delicate that we might think of it as open heart surgery on the patient bank.
Given the scale and sensitivity of this issue, the fact that the recovery and resolution regime has been globally agreed and will soon be implemented across Europe is an outstanding achievement. It was created to solve the problem of “Too Big To Fail” banks and to protect taxpayers from having to bear the costs of a failure.