Paul Tucker: Developing an EU cross-border crisis management framework Remarks by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the Eurofi Financial Forum, Brussels, 30 September 2010. *  *  *  Thank you very much for inviting me to join you here today. It is terrific that the EU, and the Commission in particular, have been taking resolution really seriously as part of the programme for reforming the financial system. This is a domestic issue, an EU-wide issue, and a global issue. In introducing this session of the conference I’ve got five points, and I’m going to try to be quite crisp on those five points once I have made an introductory comment about resolution regimes in general. It may be helpful to say a few words about what resolution is. Resolution is what happens when we are in the “last chance saloon”. That is to say when supervision, however enhanced, has not prevented distress. When higher capital and liquidity requirements have proved insufficient. When any Cocos or other instruments have been converted or written down but have proved insufficient to absorb the distressed firm’s losses, and so the institution is still teetering on the edge of failure. That is we are talking about the point at which all the usual remedies have been exhausted, and the authorities face a desperate choice between taxpayer bailout or chaotic liquidation unless special resolution tools are available. All those other, essential measures are about reducing the probability of distress.
The question now, of course, is where do we go from here. There have recently been encouraging, but still tentative, signs that the worst of the global slowdown may now be behind us, and that the US and Eurozone economies are now beginning to bottom out and will pick up, perhaps to around trend, as we go through this year. Some Asian countries actively involved in the ICT sector are showing a strong recovery, and even in Japan financial markets have recently strengthened. As for the exchange rate, the euro, which has, as I say, been puzzlingly weak since soon after its introduction 3 years ago, still seems likely to strengthen eventually. As it becomes clearer that the international environment really is improving, and that external demand really is picking up, then we can look forward to better balanced and generally stronger growth in our own economy. That will in due course mean that domestic demand growth - and consumer demand growth in particular - will need to moderate if we are to avoid a build up of inflationary pressure. But let me be quite clear - that's not a warning, still less is it a threat. It is essentially just a matter of arithmetic! It's quite possible, even quite likely, that the necessary moderation of consumer demand - and I emphasise the word moderation - will come about of its own accord, given the gradual increase in unemployment we are currently seeing, and the build up of household debt.