The logic there was that at that level failure of the material entity might trigger resolution of the group as a whole; problems for smaller entities, even those that might house functions that are critical to the host jurisdiction, should be more of a recovery matter. -  by including a provision that internal MREL for subgroups should be scaled in single point of entry (SPE) groups to 75-90% of the requirement that would apply to the subgroup on a standalone basis. The logic was that given the interdependence in the business models of SPE firms, prepositioning in this range would be sufficient to secure cooperation and deter hosts from ring-fencing, and home authorities from cutting off, foreign subsidiaries. Prepositioning of resources in this way will provide concrete underpinning for cooperation that goes beyond the paper commitments to cooperate in Memorandum of Understandings (MOUs), honoured in the breach in previous cross-border failures. Even with these restrictions there may still be a sum of the parts problem in which the sum of TLAC requirements at solo level pushes up external requirements. If internal TLAC requirements are high they are also likely to stand in the way of holding a surplus at the top of the group that could provide flexibility in covering losses if they are concentrated in a particular part of a group. Thus in our internal MREL policy our intention is first to consider setting internal MREL generally for the firm at the bottom of the 75-90% range.
A workshop held by the Committee on the Global Financial System earlier this year in Hong Kong also noted this difficulty. Appropriate calibration of macroprudential tools is difficult because of the lack of data and information about how the transmission process works―that is, what impact the tool will have on the targeted sector. Even assessing the impact ex post  1  Tobias Adrian, Meg McConnell and Joseph Tracy assisted in preparing these remarks. BIS central bankers’ speeches  1  is challenging because it is difficult to predict how the macroeconomy and financial system would have evolved if the macroprudential tool had not been in place. Second, in the U.S., even if such a framework existed, there would still be a problem in terms of timely implementation. The U.S. regulatory structure is fragmented, so that in most cases, no single regulator is able to implement macroprudential tools in a comprehensive manner. As a result, imposing macroprudential tools in the United States would almost certainly leave significant gaps in coverage. Such coverage gaps would likely lead to distortions within the financial sector, as the tool would have differential impacts across financial intermediaries inside versus outside a particular regulatory boundary. Also, activity would migrate toward those areas outside the scope of the macroprudential tools that had been implemented. It is important to note the regulatory mandates of the numerous federal and state regulatory authorities differ considerably. Some simply may not view financial stability as an important part of their mandate.