The Bank is contributing to that debate, and a number of options were discussed in our Financial Stability Report last week, including as the Governor said at the Mansion House a fortnight ago, whether or not banks' activities should be regulated more heavily or even in the extreme restricted. That debate is obviously difficult, with no easy answers. But it is important, and cannot be ducked. As the Governor proposed at the Mansion House, it would help greatly if your banks could write a “will” for how they could be wound down in an orderly way in the face of distress. Indeed, that now has to be part of the banking Social Contract. It must surely entail a radical simplification of some group structures. Moving from, say, two thousand legal entities to one thousand would, somehow, miss the point. This will not be easy. We do understand that. But it is important to bring about the kind of regime shift necessary to restore confidence and trust in the industry without a government prop. The degree to which banking groups cannot deliver on this should be reflected over time in capital and liquidity requirements. As well as making distress itself less likely, that would also help to shift incentives in a healthy direction. I have talked throughout about banks. But the authorities will need to consider how far this approach should extend. The Treasury already has power to put bank holding companies into Temporary Public Ownership, but none of the regular SRR toolkit is available.
There is a case for debating whether it should be a regulatory requirement. The information I outlined is not needed just when a bank does actually go into liquidation and the FSCS makes a payout to depositors. It is also needed by the Bank of England to assess whether any of the Special Resolution Regime (SRR) tools could meet the statutory objectives of the 2009 Act more effectively than liquidation. Indeed, that is why the Bank has a clear interest in the information provided to the FSCS. In fact, even more information is needed when we employ the SRR instead of liquidation. Using the new Act, the Bank, working the FSA and HMT, can split up a bank or building society into a number of pieces: deposits going to one buyer; some assets possibly to another; parts going into administration. Effective execution of an operation of this kind is very information intensive. For example, it requires banks to have up-to-date, coherent management accounts for all parts of the business. One might think that would be a good idea anyway. It should certainly be a requirement now. Execution also requires detailed information on how the business is run. Just a few examples. First, on the services that different parts of the group provide to each other, because if split up they may have to agree so-called Transitional Service Agreements. Second, on which essential services have been outsourced. Third, on details of netting and derivative contracts, so that the Bank can apply various statutory safeguards for creditors.