It may therefore have to borrow from the Treasury in order to contribute to the immediate cost of the resolution (as in Bradford & Bingley), with the FSCS contribution ultimately amounting to the cost of any eventual shortfall in recoveries. The FSCS is therefore an important part of the overall resolution landscape, and I will come back at the end of my remarks to consider how these arrangements might develop. It is important to ensure that a regime like the SRR contains appropriate protections. At the heart of it is the ability given to the Bank to alter the treatment of property rights from the base of normal insolvency law. When the Act was being drafted, the lawyers talked a great deal about avoiding “Henry VIII” powers. I thought that this might have something to do with having the power to chop off heads. But that was not the case; rather, it derives from Henry’s dissolution and seizure of the monasteries, which was an extreme case of intervention in property rights. The Bank of England’s Special Resolution Unit takes on a more temporal role in its treatment of property rights, and one – you will be pleased to hear – that is shaped by secondary legislation to provide safeguards and a Code of Practice. I think we can be quite confident that Henry VIII saw no need for a code of practice. The safeguards in our regime were drawn up in consultation with practitioners.
We at the central bank stand ready to analyse the new  8  BIS Review 111/2006  capital requirements’ effects on financial stability, in particular in situations when there is volatility in the macro economy and banks’ credit losses may increase. There is also the issue of implementing the new international accounting standards, IAS. A highly controversial but also interesting development is that the standards promote a higher degree of market-related valuation of many more categories of assets and liabilities in banks and other institutions. Banks are already used to market valuation for highly tradable assets, but the new standards go further and request banks to value also non tradable assets and even liabilities to assumed market prices. In general, and although I recognize the problem of market-valuation of items for which there is no ongoing market, I support the idea of more transparent and market-oriented valuation. I accept that it may lead to more fluctuations in the banks’ balance sheets and also in their profits and losses. Although the financial strength of a bank in the long run will not be affected by using the new accounting principles there is a risk that the analysts and other readers of the financial reports will not understand the difference between the reported temporary results and the underlying issues. They may then panic because of seemingly bad short-term bank results or become excessively optimistic over temporary good results.