Under the solo-approach, capital requirements are also applied to each of Bank A, Bank B and Bank C individually, after having deducted from Bank A’s capital, its investment in B, and from B’s capital its investment in C. Under the sub-consolidation approach, capital requirements would be applied on the consolidated accounts of Bank B, ie after adding the assets and liabilities of B and C and eliminating any intra-group exposures. BIS central bankers’ speeches  3  For groups for which Single-Point-of-Entry – broadly, bail in of debt issued through a holding company – is the preferred resolution strategy, local subsidies need a combination of equity and intragroup GCLAC (ie intragroup bonds) that permits losses to flow smoothly to the topco. By transferring losses upwards, an ailing subsidiary is recapitalised. Whether that suffices for the host authorities will depend on their confidence in the capacity and willingness of the group’s home authorities to execute an effective resolution of the topco. By contrast, for groups for which Multiple-Point-of-Entry – breaking up a group – is the preferred resolution strategy, the host authorities of a subsidiary identified for “separation” must ensure that it has a capital structure and sufficient operational independence to enable them to resolve it themselves with their particular set of powers. Put simply, for firms within a group for which SPE is the preferred resolution strategy, the group as whole is a source of strength on which local supervisors can place weight.
The Bank of England now has extensive powers as a micro supervisor of individual firms and a macro supervisor of the financial system as a whole. Parliament has set objectives for both – primarily, safety and soundness for the PRA,  4  BIS central bankers’ speeches  and the resilience of the system for the FPC. But unlike in monetary policy, we do not have a quantified target – and, to be clear, we do not think that that would be possible. To have such power with limited transparency would be uncomfortable. If nothing else, it would leave the Bank in a position where supervision was of interest only when it obviously goes wrong. We need to engage society – public, Parliament – in debates about the resilience of the financial system and how we are supervising it in the good times as well as in bad times. The FPC and PRA have already taken various steps to help with this – the six-monthly Financial Stability Review, the published Record of FPC policy meetings, the Committee’s statement on the use of its directive powers, the PRA’s Approach document and annual report, and so on. But stress testing can provide a quantum leap in transparency and accountability. For example, the FPC will need to be able to defend its choice of stress against questions and criticisms that the scenarios are too extreme or not tough enough. That will implicitly be a healthy debate about objectives.