Effective resolution regimes, will constitute the basis of the approach, upon which other policies would build. A cornerstone of this foundation should, I think, consist of recovery and resolution plans, or “living wills”, formulated by the largest financial institutions.
These plans will require institutions to specify the measures they will take in the event of severe stress and will also allow authorities to assess the potential orderly resolvability of these institutions without having recourse to public funds. The rapid spread of the financial crisis has been a lesson not only to market participants but also to supervisors.