Needless to say, we must accept the reality that different national resolution regimes will continue to coexist. Let me be very clear on this: A full-fledged global resolution regime is a noble but seemingly unrealistic goal. We should not conclude from that, however, that the framework for cooperation across countries cannot be improved. One possibility is to work towards mutual recognition arrangements of compatible national resolution regimes. Recognising other resolution regimes helps each nation to adapt its own structures and processes in order to reduce frictions in crisis episodes. We should require that firms more clearly delineate different functions within their internal structures and simplify those structures. This will help facilitate an orderly wind down in the event of a severe crisis. It will probably also enhance effective management and risk management in these firms. This is an important point. As the crisis has demonstrated, in a  BIS Review 145/2009  5  number of cases it can be argued that firms were not only too big, but also too complex to be managed effectively. Furthermore, we need a financial market infrastructure which – to the extent that this is possible – minimises the destabilising effects of a failure on the rest of the financial sector. A key element that cannot be emphasised enough is the ongoing effort to centralise the clearing and settlement processes in the derivative market. This enhances transparency and reduces counterparty risk.
N. Tarashev, C. Borio, and K. Tsatsaronis, “The systemic importance of financial institutions”, BIS Quarterly Review, September 2009, pp. 75-87. 6  BIS Review 145/2009  The inconvenient truth is that effective regulatory reform inevitably imposes some costs on banks. In the words of the late Milton Friedman, “there is no such thing as a free lunch”. The current crisis of the global financial system was not an accident. It was the result of optimising behaviour on the part of market participants. Given the rules of the game, they were maximising short-term profit. It is therefore too simplistic to vilify bank managers. With respect to regulation, however, this implies that if we do not change the rules of the game, which guide this optimising behaviour, we will sooner or later end up in a similar situation again. Costs are only one determinant of banks’ competitiveness. Safety, soundness, and trustworthiness are other important factors. Hence, if we view competitiveness from a broader perspective, strengthening financial regulation ultimately has some benefits for banks, too. While some business areas may become less attractive, others will gain. In Switzerland, for instance, where wealth management forms the backbone of the banking industry, financial stability is a crucial factor for success. In this context, it is interesting and certainly promising to note that the two big Swiss banks now emphasise their strong capital position as an important competitive advantage. Nevertheless, to be on the safe side regarding a level playing field, ideally all regulatory reform should be internationally coordinated.