There would be one, global resolution, led by the home authority. But pure universalism also faces major obstacles. First, it would imply a surrender of national sovereignty – replacing it with pre-defined and enforceable rules that determined the roles of different authorities in different jurisdictions. Second, unless steps were taken to rule out the need for sovereign Capital of Last Resort operations 4 , it might well need to be accompanied by an ex ante burden-sharing mechanism, to facilitate a sharing of the costs of resolution across the jurisdictions in which a bank had activities. In theory, that could be addressed by the main home and host authorities of each LCFI agreeing a set of binding principles to govern the distribution of the costs of a universal resolution across jurisdictions. An alternative would be to design a single resolution regime for all LCFIs, to be implemented along universal lines by a supranational resolution authority. But would countries be prepared to tolerate the loss of fiscal independence and the overturning of national insolvency laws that this model would entail, especially if it required governments to commit to recompense the agency for unlimited amounts in the future? That is most definitely not a question for central bankers. (iii)  Modified universalism  Pure territoriality and pure universalism are corner solutions. We live in a world where some countries are closer to one corner, others closer to the other. Some have suggested that an intermediate solution might be feasible.
In either case, however, it would expose the authorities to risk of loss, and so would not always deliver the Objectives I think we share. It would not be assured to preserve orderly markets in all cases. And it would be insufficient if a firm was actually insolvent. A quite different, and rather more profound approach would be to deploy a super special resolution framework that permitted the authorities, on a rapid timetable, to haircut uninsured creditors in a going concern. By haircutting creditors in a going concern, there would be no need to close the business immediately (or, if regulators wished, even at all). That is a very high-level description. Variants obviously exist. Instead of haircuts, uninsured creditors could have part of their claim converted into equity. And it would need to be clear how the regime applied to the normal ranking in the capital structure, with common equity and subordinated debt being wiped out before any senior unsecured debt was haircut (or converted) at all. Precisely because investment banking is highly levered, relatively small percentage haircuts (or conversions to equity) could materially recapitalise a distressed firm. Creditors would recapitalise distressed LCFIs, not the state. In that, it shares some features of contingentcapital bonds, but would be on a statutory basis and could apply to all unsecured creditors in the extreme circumstances of systemic distress. The crucial feature is that haircuts/conversion would be applied up front to creditors of a going concern.