This initiative of the private sector sets out the terms under which the 18 largest dealer banks, which represent 90% of derivative activity, would stay cross-border derivative contracts temporarily when a global bank fails. This is a fundamental step to closing off the risk that foreign counterparties take their money and run. By agreeing to a short stay, cross border resolution becomes much more realistic and achievable. Once this agreement is concluded, other market participants must be brought onto similar terms to those of the 18 big dealers, and FSB members must deliver on their commitments to establish regulatory requirements for contractual stays. There is more to do. Resolution plans must be finalised; we must systematically remove remaining legal and operational impediments to resolvability, we must think through mechanisms to ensure firms have adequate funding in resolution, and we must ensure resolution regimes for systemic non-banks are as effective as they are for banks But make no mistake. Brisbane will be the watershed in our collective effort to end Too Big to Fail. 2  BIS central bankers’ speeches  Building an open, global financial system Fixing the fault lines behind the last crisis isn’t enough. The second objective of the G20’s efforts is to rebuild trust in an open, global financial system. Trust between financial institutions. Trust between regulators. Trust between industry and finance. And most fundamentally, trust between the public and the financial system. That trust is essential to maintaining a truly global financial system that integrates all major economies.
4  For example, see Chung et al (2011), “Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events” and Vice Chairman Janet Yellen (2011), “The Federal Reserve’s Asset Purchase Program”, remarks at the Allied Social Science Associations Annual Meeting, Denver, Colorado, January 8. 5  TIPS are designed with a floor of zero on the cumulative inflation adjustment that they can realize over the life of the security. Thus, the prices of securities that are similar to each other in most ways but have different amounts of accrued inflation can be used to derive a measure of the value of this floor, which can then be translated into the probability of deflation. 2  BIS central bankers’ speeches  time, though, breakeven inflation rates have risen back to levels more consistent with the FOMC’s mandate, and the perceived risk of deflation has diminished notably. One criticism that has been directed at the LSAP2 program is that it was unable to restore vigorous growth to the economy. I think this is a reasonable observation but not a strong criticism. It is true that the support to growth provided by the asset purchases appears to have been countered by other factors that have continued to weigh on growth. However, the LSAP2 program was never described as such a potent policy tool that it could ensure a return to robust growth and rapid progress toward full employment in all circumstances.