We should be considering ways to use this authority in pursuit of three complementary ends: (1) ensuring the loss absorbency needed for a credible and effective resolution process, (2) augmenting the going-concern capital of the largest firms, and (3) addressing the systemic risks associated with the use of wholesale funding.
There is clear need for a requirement that large financial institutions have minimum amounts of long-term unsecured debt that could be converted to equity and thereby be available to absorb losses in the event of insolvency. Although the details will, as always, be important, there appears to be an emerging consensus among regulators, both here and abroad, in support of the general idea.