In some cases, the extreme private sector solution – winding-down of the troubled institution – would probably be the preferred approach. The Law on Credit Institutions together with the Bankruptcy Act provides central bank and other authorities with all necessary powers for closing down the business and letting trustees to take care of the practical aspects. The Deposit Insurance Fund will immediately reimburse all depositors within legal limits. BIS Review 63/2001  3  Of course, in other situation, different approach must be taken and a strict adherence to the former rule is not feasible. Nevertheless, the initial response would still be the private solution. One option would be the central bank to take the lead as an honest broker and bring together all private and official parties concerned. Ideally, that would result in design of ad hoc private solution in a form of merger, acquisition or emergency support. The role of central bank would effectively be the application of moral suasion, without committing public funds. However, one can and should not wholly dismiss the need for direct public intervention should it become necessary. What will be different in our case is that in case of serious trouble, the dividing line between liquidity support and capital injection would be rather blurred or these operations may even take place simultaneously, after writing down capital of the troubled institution. The need for very close coordination between the central bank, the government and supervisors is characteristic feature of this approach.
This is an important discussion, in which the decline of the natural real rate of interest plays a central role. Its measurement, an understanding of its drivers and its relevance to monetary policy are crucial issues that are in the spotlight of academic research and central bank discussions. See, amongst others, Brand, C., Bielecki, M. and Penalver, A. (2018), “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, Occasional Paper Series, No 217, ECB; Bauer, M. D. and Rudebusch, G. D. (2019), “Interest Rates Under Falling Stars”, Federal Reserve Bank of San Francisco Working Paper 2017-16; Kiley, M. T. (2019), "The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges", Finance and Economics Discussion Series 2019-076, Board of Governors of the Federal Reserve System; and Clarida, R. H. (2019), “Monetary Policy, Price Stability, and Equilibrium Bond Yields: Success and Consequences”, Speech at the High-Level Conference on Global Risk, Uncertainty, and Volatility, Zurich, 12 November. I will discuss the drivers of the low level of rates in another speech later this week. [5] Modelling and interpreting the level and the shape of the yield curve is an active field of research. Since Irving Fisher’s “Appreciation and Interest” and John Hicks’s “Value and Capital”, which are sometimes referenced as the earliest formalisations of the expectations hypothesis of the term structure, hundreds of research papers on the joint dynamics of bond yields of different maturities have been produced.