The goal, of course, is to be able to resolve distressed giant institutions, complex institutions, without taxpayer solvency support, but also without disastrous disruptions to the flow of essential financial services to our economies. I would say two substantive things about the tools needed to make this feasible. First of all, as the crisis around the world has demonstrated, we need to extend the basic resolution toolkit I was talking about beyond commercial banks to bank holding companies and to affiliated companies; in other words, to groups. And we must extend the scope of the basic resolution regime to non-bank financial institutions and groups in circumstances where their distress could prove systemic. This is essentially what the Dodd-Frank Act does in the United States. It makes it possible for the FDIC to manage and run down a SIFI from a bridge company. This could work well in some circumstances; for example, where there are buyers for parts of the business in the wings, as with Lehman. This is, therefore, a resolution instrument which we should seriously contemplate adopting in Europe. I am not certain that it would definitely work in all circumstances; eg if there were no buyers in prospect, the state ends up running the group, which could be quite a thing, with a risk that staff and counterparties may drift away. But even in those circumstances it would surely be preferable to a normal liquidation.
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.