3  FSA DP09/4: Turner Review Conference Discussion Paper, “A regulatory response to the global banking crisis: systemically important banks and assessing the cumulative impact”. 4  BIS Review 144/2009  Second and beyond liquidity planning, recovery can involve derisking. This might mean laying off risk, shedding positions or even selling businesses. Once in distress, banks absolutely must be prepared to shrink their franchise in order to sustain themselves. That may entail having businesses set up within groups in a way that would facilitate sale, if necessary. Sometimes what a group regards as its core franchise will not map exactly into what the authorities think of as the essential economic services it provides. That is obviously for discussion between firms and their regulators, who need to be ready to exercise powers to force risk-reduction and recapitalisation where necessary to preserve the soundness of the enterprise and the stability of the system. “Derisking” is all about the capital resources of banks in the face of idiosyncratic or widespread stress. There is, therefore, a read across from the “Living Wills” exercise to the question of how much capital banks should hold. Almost no amount of capital is enough if things are bad enough. Which is why contingent capital might potentially be an important element in banks’ recovery plans, as the Governor set out recently in Edinburgh. 4 This would not be the kind of hybrid capital that mushroomed in the decade or so leading up to the crisis.
A second generation of crypto tokens is emerging, to address some of the current challenges related to network congestion, transaction time, energy costs, money laundering risks, and importantly, price stability. Some of the best minds in the field are applying their creative energies to make crypto tokens mainstream. Not all developers and programmers in the crypto world are anti-establishment anarchists. Many may have been 10 years ago, but a growing number are married and have kids now! They know the value of stability. The litmus test will be public trust and acceptance. Basically, the history of privately issued money has not been an inspiring one. Will people put their faith in Money that is not backed by a trusted public institution like a central bank dedicated to protecting its value? Perhaps – if an algorithm can mimic the reaction function of a central bank and preserve the value of the crypto token better than central banks can do with respect to fiat currencies. We have to wait and see. The good, bad, and ugly of crypto tokens Whether crypto tokens become Money or not, they are here and they pose a variety of issues – the good, the bad, and the ugly. Let me start with the good. As many have pointed out, far more significant than the crypto token is the underlying blockchain technology that these tokens help to power. The blockchain has two distinct characteristics that hold promise. First, it is a distributed ledger.