More than four-fifths of that assessment rests on the extent of non-traditional non-insurance activities in a firm’s business model and on its interconnectedness to the wider financial system. Nine firms have been designated. It is vital that these systemic insurers, like systemic banks or financial market infrastructure, can be resolved in the event of failure without the need for taxpayer support and without disruption of the wider financial system. That’s why the development of resolution plans is a top priority. Nonetheless, given the externalities from the failure of a systemic insurer, it is of course preferable that their probability of failure is lower. That’s why systemic insurers will be subject to higher global standards. The Higher Loss Absorbency requirements, being developed now by the IAIS, will ensure that all of the activities of a systemic insurance group – but especially non-traditional, noninsurance activities – are backed with an appropriate minimum level of capital resources. Given the patchwork of capital standards across major jurisdictions, the first step towards applying these heightened resilience requirements is the development of the Basic Capital Requirement – an internationally comparable capital measure that will act as the baseline for additional resilience. Last week in Cairns, the FSB approved the final BCR proposal which will be presented to G20 Leaders at the Brisbane summit in November. It is simple and factor-based, contains a common valuation approach, and captures all activities of insurance groups.
Perhaps, even more important, one of the key benefits of ensuring that certain creditors know they can be bailed in is that those creditors have a much stronger incentive to monitor and, if necessary, constrain the risks banks are taking.13  Transition to new resolution regime Moving to an effective resolution regime, including for the largest cross-border banks, will require a major transition. Many larger banks will need to make changes to their structure and financing. There will inevitably be higher costs as the implicit public subsidy is removed. There is no free lunch. This transition needs to be carefully managed. So in conclusion, I want to set out the principles that the Bank of England is following to guide the implementation of the new regime. Proportionality First and perhaps most important is proportionality. The resolution requirements for a bank should be what is necessary to deliver the resolution strategy for that bank – no more and no less. 12  See Bank of England (2015). 13  The Financial Stability Board has calculated that a withdrawal of government guarantees could reduce banks’ probability of failure by a third. This draws on evidence in IMF and Fed NY working papers that evaluate the relationship between the ‘government support assumptions’ that rating agencies express and measures of bank risk-taking. BIS central bankers’ speeches  7  Large banks cannot be allowed abruptly to cease operating. They have to be stabilised and resolved. Resolution is not resurrection. It takes time.