Use of CRA ratings in regulatory regimes We will also need to revise the extent to which we as a regulatory community use rating agency ratings. The official sector can’t express concern – at times indignation – about the performance of rating agencies, valid concerns, and then at the same time continue to build rating agencies ratings umbilically into our regulatory regimes. Over the past few months, I have been chairing a working group of the FSB developing proposals on that, which will go to Ministers and Governors shortly. I think Ministers in Europe are attentive to it as well. Changes in this area will take time and will not be easy, but they are being planned. The underlying purpose of securities markets regulation Going beyond that, the final thing I would say in this area is that the conceptual framework for securities regulation, especially in the USA, has over the past 30 years or more  1  For more information, see the report of the Securities Review Committee (1988), “The Operation and Regulation of the Hong Kong Securities Industry”. BIS Review 145/2010  3  essentially made a distinction between public markets and private markets, public issuance and private issuance. That is basically because it has taken an investor protection approach to securities regulation. The investor protection objective remains valid of course.
Too Big to Fail: resolution regimes This wasn’t a crisis that revolved in every single degree around institutions that were Too Big Too Fail but, my goodness, they were at the heart of it. And it is intolerable for our societies, it is intolerable for capitalism, that we should continue to have institutions that are too big to fail. The Financial Stability Board will, therefore, be recommending to the G20 a package on this. It will include greater loss absorbency for the largest and most complex firms whose distress would inevitably spillover into the global system – probably in a way that can, in degree, be implemented in different ways in different countries and contexts, subject to a meaningful process of peer review to avoid free riding. But absolutely central to this is resolution regimes. Too many countries do not even have the most elementary resolution regime for their national commercial banking institutions. Perhaps partly for that reason, many people, when they talk about resolution, slip after about 15 seconds into talking about enhanced supervision and early intervention. To be clear, resolution is about when everything else has failed. It is about when early intervention and higher capital requirements, better risk management and more resilient capital markets let us down, and we are in “the last chance saloon”. The distressed institution is no longer viable, and officials are presenting our political leaders with a ghastly choice between chaos from straight liquidation and, alternatively, taxpayer support to prevent the system imploding.