In so doing, it is likely that directors will take steps to ensure that there are appropriate accountability mechanisms within the management hierarchy. Over time, we expect that the increased accountability of bank directors will lead to an improvement in the quality of bank boards.
In order to minimise the risk to government finances posed by bank rescues, 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, with regard to the adequacy of capital buffers, sovereign bonds need to be adequately risk-weighted.