A crisis management and resolution system built on a sure, agreed legal foundation is essential to an approach that can reduce systemic risk and thus the moral hazard generated by large banks. Generally speaking, then, the orderly management of a crisis requires access to sources of financing.
In the first place, resources must be procured by capital writedowns, the sale of assets and the reduction of exposures to unsecured creditors. This can be followed by recapitalization through the conversion of debt into equity.