In order to minimise the risk that bank rescues pose to government finances, creditors have to be the first in line when it comes to bearing banks’ losses. Implicit guarantees have to be removed as taxpayers’ money can only be the last resort. By the same token, sovereign bonds need to be risk-weighted appropriately when it comes to the adequacy of capital buffers.
By more clearly defining risk exposures, identifying the causes of their losses, and establishing controls to limit future losses, bank managers have been better able to integrate decisions about risk-taking into their strategic and tactical decision making. Banks that integrate risk measurement into their business-line goals often find that this helps them to implement their strategic plans more effectively.