We cannot afford to have banking, so central to the allocation of capital in market economies, semi socialised. Moreover, we need to harness the energies of bond holders to monitoring and helping to contain the tendency to excess characteristic of bankers, over the generations, in the upswing of the credit cycle. That is not  1  See INSOL International (2000), Statement of Principles for a Global Approach to multi-creditor workouts. 2  That strategy was initially set out by the Financial Stability Board in 2010, Reducing the moral hazard posed by systemically important financial institutions, available at http://www.financialstabilityboard.org/publications/r_101111a.pdf  BIS central bankers’ speeches  1  in and of itself a guarantee of stability, but I would rather give asset managers incentives to help the objectives of prudential supervisors than incentives to rely on a fiscal backstop. Second, effective resolution regimes, capable of operating across national borders, are necessary for a healthy international monetary and financial system (IMFS). As Mervyn King has said, the large financial groups have been ‘international in life, but national in death’. Without effective cross-border resolution arrangements, domestic authorities are left with a clear incentive to take steps to cap the contingent exposure of local taxpayers, who are local voters. That is surely part of the backdrop to the series of measures taken by national and regional authorities to restrict the range of activities or structure of banking. Those measures need to be taken without the world slipping into a hard-to-reverse balkanisation of the international financial system.
8  The trigger for statutory resolution would be, broadly, that the conditions for the group being authorised as a bank or dealer were no longer met and there was no reasonable prospect of repair. It should be underlined that what is described here is nothing to do with so-called ‘contractual bailin’, which has been a source of confusing distraction over the past year or so. ‘Contractual bailin’ typically refers to bonds that convert into equity or write down under a trigger establishes purely in the contract documentation. But if the trigger is the firm’s capital ratio dipping below a high threshold, the bond is in fact for recovery not for handling abject distress. If, at the other end of the spectrum, the trigger is falling below a low capital ratio, there can be no assurance that the firm would survive in the markets long enough for the bond to be triggered before the firm had to go into statutory resolution. And if the suggestion were that the contractual trigger should give the regulators discretion, most Resolution Authorities would want to avoid writing down or converting bonds outside the statutory resolution process, since that provides protections for creditors, and gives the RA protections and powers for the achievement of a clear statutory objective established by the legislature. Bailin is not about a specific type of bond – a so-called ‘bailin bond’ – but about the application of a statutory resolution power to bonds of any kind within a statutory resolution.