It is my contention that bank shareholders and bank creditors should bear a very large proportion of the systemic risk currently laid at the feet of future taxpayers. To shift this risk requires new instruments such as local incorporation and plans to recapitalise failing banks with creditors' money.
It is necessary to ensure that capital is really available to absorb losses, and is of sufficient quality and held in sufficient quantity. Banks should face incentives to hold closer to the socially optimal level of capital. 10  BIS Review 60/2001