We have now taken some initial steps towards this goal – through the Financial Stability Board principles at an international level and the agreement to create a Single Resolution Mechanism at a European level. Even so, there is still a long road ahead of us. Second, each bank resolution throws up the same question: who should bear the costs?
When a bank is resolved, there have to be sufficient resources available to absorb losses. These resources – known as “gone concern loss absorbing capacity”, or “GLAC” – should be sufficient to allow the failed bank to be resolved. In other words, GLAC should help to recapitalise viable components of the failed bank, or a bridge bank.