A broadly common statutory framework will help home and host authorities work together on resolution planning. To that end, Crisis Management Groups (CMGs) are now in place for nearly all global systemically important firms (or G-SIFIs as they are now commonly called), with the goal of reviewing firms’ proposed recovery plans and developing resolution strategies for them. Firm-specific cross-border cooperation agreements (or CoAgs) are also  2  BIS central bankers’ speeches  being developed, setting out roles and responsibilities of the home and host authorities, clarifying how they will share information, and how they will cooperate to implement their preferred resolution strategy. If home and host authorities are not going to cooperate, we need to flush that out ahead of time, rather than stumble into it in the moment of desperation. There’s a good deal of cultural change entailed here. In the past, supervisors have sometimes seemed during peacetime to be more committed to cooperating than they have been prepared to live up to when it most mattered. A forthcoming FSB consultation paper on developing resolution strategies But we – the FSB – realise that more guidance is needed. Although not of central interest to this audience, resolution isn’t just about banks, and so we are planning to elaborate on how the Key Attributes should be applied to, for example, central counterparties, insurers, and the client assets held by prime brokers, custodians and others.
But when a benign upturn originally driven by FDI in the energy-intensive sector turned into overheating, and fiscal and other demand levers pulled by the Government were either insufficiently used or pulling in the other direction, monetary policy was overburdened and the increased interest rate differential that resulted pulled in further capital and carry trade positions. Let me now turn to the banking part of the story. Before the collapse, the banking system had expanded very rapidly, growing in just five years from a combined balance sheet of less than 2 times GDP at the end of 2003 to 10 times GDP. Most of this expansion was cross-border, and a significant part of it was really off-border, having little to do with Iceland, as both financing and investment took place abroad. Around two-thirds of the balance sheet of the three cross-border banks was denominated in foreign currency. As is typical for banks, the FX part of the balance sheet had a significant maturity mismatch. However, there was no safety net of the type that we have in a national setting to back it up. This turned out to be the fatal flaw in the whole setup, although we now know that these banks were also undercapitalised, which might have done them in at a later stage. But so were several European banks that were considered solid at the time – and some of them are still around!