A bank failure affects not only shareholders and professional investors, but also all the ordinary people who have put their money in the bank in the belief that it will be safe there. It is not without reason that you often hear the reference to widows and orphans running the risk of losing their money in connection with bank problems. And even if the depositors may in the end recover much of their money in a subsequent insolvency procedure, they may lose access to the money in their bank account, and the possibility to make payments from it, for quite some time. As most of us have most of our money in a bank account, we may find it difficult to quickly find the means needed to pay our rent and food if this happens. And you may also be affected by the failure of other peoples’ banks. For instance, if your employer’s bank gets into problems, the pay-roll account might be frozen and you might not get your salary. And if your employer cannot quickly get credit from another bank, he may not be able to pay his subcontractors and his utility bills. He may also find it difficult to manage the risks in his business, for instance in relation to trades in a foreign currency. At worst, he may need to shut down entirely. A bank failure can thus have negative effects on the real economy.
But I think that we could go further in the direction of setting up minimum requirements for a crisis resolution framework for banks and other institutions covered by the financial safety net. Here one can draw some parallels to the work on fiscal policy frameworks, where the EU has come a long way in terms of coordination and codes of conduct in the event of macroeconomic crises. Where do we go from here? It is time to sum up. My message is that it is important for us to get in place an efficient regulatory framework for weak banks. A framework which combines the need to maintain stability and minimise costs to the public sector in the short term with the requirement for long-term market discipline. Returning to the health-care metaphor I started out with, we need to be able first of all to deal with the ordinary flus and broken bones of the financial system. But we also need to be prepared to deal with a more serious event. A possible outbreak of avian flu in the financial system. I have tried to outline the broad lines of such a framework.